Esempio di prova d\'esame con soluzioni esercizi - Sistema Finanziario / Financial Markets And Institutions a.a. 2016/2015 PDF

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There are two possible states of the world, each occurring with probability 50%. Asset A pays 100 if the first state of the world occurs and 185 if the second state of the world occurs. Assume that the firm that issued Asset A has undergone significant changes, so that now Asset A pays 200 in the fi...

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1.

There are two possible states of the world, each occurring with probability 50%. Asset A pays 100 if the first state of the world occurs and 185 if the second state of the world occurs. Assume that the firm that issued Asset A has undergone significant changes, so that now Asset A pays 200 in the first state of the world and 310 in the second state of the world. Everything else remains the same. As a result, A. the price of Asset A can go up or down, depending on investors' preference towards risk. B. the price of Asset A should go down. C. the price of Asset A should go up. D. nothing should happen to the price of Asset A. The asset now pays more in each state of the world: investors in Asset A are better off no matter what. Hence, the demand for this asset will go up. Since everything else (including the supply of this asset) remained the same, an increase in demand will raise the asset's price.

2.

Money market securities should have, among others, which of the following characteristics? I. High liquidity II. Little price risk III. High rate of return IV. Life greater than one year A. II and IV B. III and IV C. I and III D. I and II

3.

An investment pays 240 in one year, X amount of dollars in two years, and 460 in 3 years. The total present value of all the cash flows (including X) is equal to 1500. If the yield is 6%, what is X? (Round your result if necessary). A. $997.04 B. $811.64 C. $800 D. $887.36 X = (1+0.06)^2*1500-(1+0.06)*240-460/(1+0.06)=997.04

4.

A 3-year corporate bond has a 7% coupon rate and a face value of $1000. What should be the bond's price if the current market interest rate is 6% and the bond pays coupons semiannually? A. $1027.09 B. $949.49 C. $1216.69 D. $1000 Price = 35.00 × PVIFA (3%, 6) + 1000 × PVIF (3%, 6). The bond makes 6 semiannual payments: the first five are just $35 (coupons), while the last one is $1035.

5.

An annual coupon bond with a $1000 par value has a 5% coupon rate, a 6% YTM, and 3 years to maturity. What is the bond's duration? A. 2.86 years B. 2.51 years C. 2 years D. 3 years First, calculate the present value of this bond by discounting its cash flows. This present value is $973.2699. Now use the definition of duration: Σ[(t*CFt/(1.06)t)]/$973.2699

6.

Consider a 5 year bond with a 10% coupon whose present yield to maturity is 8%. If interest rates remain constant, one year from now the price of the bond will be:

A. can not be determined from the information given B. the same C. lower D. higher Since the YTM is lower than the bond's coupon, this bond is selling at a premium. As time goes by, its value will approach the par, if interest rates do not change (because at this bond's expiration it will pay its par value plus the last remaining coupon). Thus, it will go down.

7.

Assume that on any given day about 10% of market participants make large mistakes in pricing stocks and engage in transactions that cause them to lose money. This fact

A. does not invalidate the Efficient Market Hypothesis B. invalidates the strong form of the Efficient Market Hypothesis C. invalidates the semi-strong form of the Efficient Market Hypothesis D. invalidates all forms of the Efficient Market Hypothesis The fact that some people are irrational (in this case, a small minority) does not contradict the EMH, as long as there are enough rational investors exploiting profitable investment opportunities.

8.

A stock is currently selling at $60, which you think is a fair price. It has just paid a dividend of $6. You expect the dividend to grow this year and perpetually afterwards at 7% per year. What must be the required rate of return on this stock (round to the closest integer)?

A. 10% B. 7% C. 18% D. 27% This is an application of the Gordon formula. Remember that in the numerator you should put the dividend starting next year, which in this case is $6*(1+7%). The required return is then calculated as 6*(1+0.07)/60+0.07=0.177, or approximately 18%.

9.

A forward contract

A. has substantially higher default risk than an equivalent futures contract. B. is traded on an organized exchange C. has substantially lower default risk than an equivalent futures contract. D. is marked to market daily and is subject to margin requirements 10.

On September 30, 2013, Trader Y sold one futures contract for October 30, 2013 delivery. The contract was written for the delivery of one share of stock. When the trader entered the market, the spot price was $28 and the futures price for October 30 delivery was $40. He closed his position on October 9, 2013, when the spot price was $18 and the futures price for October 30 delivery was $70. As a result,

A. Trader Y made a profit of $10. B. Trader Y made a loss of $30. C. Trader Y made a profit of $42. D. Trader Y made a loss of $22. The payoff to a short position on a futures contract is the futures price at which the contract was closed minus the futures price at which the contract was opened: $40-$70, which is a loss of $30.

11.

A stand-alone option means that the writer of the option does not enter any other transaction besides the option. Writing a stand-alone call option

A. results in a potentially limited gain and a potentially unlimited loss. B. is only possible if the writer of the option possess the asset on which the option is written. C. results in a potentially unlimited gain and a potentially limited loss D. is the only way to hedge.

12.

A bank wants to finance its asset expansion and has two options. It can either attract additional deposits or issue commercial paper. The required reserve ratio is 10%. If the bank has to pay 4.6% on its deposits and 5% on its commercial paper, which one should it choose?

A. none of the above B. commercial paper C. the bank is indifferent between the two options D. deposits Out of $100 in deposits, the bank can lend at most $90. However, it has to pay interest on the entire $100 in deposits. Hence, the cost of funds for deposits is 4.6/90 (per dollar of investable funds). The cost of funds for commercial paper is 5/100 (per dollar of investable funds), since there is no need to keep required reserves against commercial paper. 4.6/90 is greater than 5/100. Hence, the bank chooses to finance its expansion with commercial paper.

13.

If you invest $10,000 in a mutual fund with a NAV of $50 per share and a 5.5% backend load, you will:

A. receive more than 200 shares in the fund. B. receive exactly 200 shares in the fund. C. receive less than 200 shares in the fund D. none of the above A back-end load is not paid until shares are sold. Therefore, you will buy 10,000/50=200 shares.

14.

Which of the following could result in a negative NIM, all else equal?

A. Higher non-interest income B. Growth in net interest income

C. Decline in net interest income D. Lower non-interest expense Recall that NIM is the difference between interest income and interest expense, divided by assets. Thus, NIM is lower when interest income is low and/or interest expense is high.

15.

Long-term lending relationships have which of the following benefits? I. They enable financial institutions to observe borrower behavior more closely. II. They increase competition between banks. III. They alleviate moral hazard because the borrower cares about remaining on good terms with the lender. IV. They enable existing customers to obtain new loans more easily. V. They make it easier for regulators to assess risk-taking by financial institutions.

A. I, II, and V only B. II, IV, and V only C. I, III, and IV only D. III and IV only 16.

An open-end mutual fund owns 1500 shares of Krispy Kreme priced at $12. The fund also owns 1,000 shares of Ben & Jerry's priced at $43, and 2,000 shares of Pepsi priced at $50. There are no other assets or liabilities in the fund. The fund has 3,500 shares outstanding. What is the NAV of a fund's share?

A. $66 B. $56 C. $46 D. $36 [(1500*12) + (1000 * 43) + (2000 * 50)]/3500 fund shares = $46

17.

You are a manager at XYZ Firm. You annual base salary is $60,000. A project comes along, which will yield your firm $1,000,000 if it succeeds and 0 if it fails (all other projects and your base salary are unaffected by this new project). If you work hard on this project, it will succeed with probability 80%. Otherwise, it will succeed with only a 20% probability. Working hard requires additional effort from you over and above what you would normally do. What minimum stake in the project will induce you to work hard if you value this additional effort at $30,000?

A. 3.5% B. 5.0% C. 4.375% D. 17.5% Let y denote your stake in the project (you get 1,000,000y if the project succeeds, in addition to your salary). If you do not work hard, your expected payoff is 60,000+1,000,000y*0.2. If you work hard, your expected payoff is 60,000+1,000,000y*0.8-30,000 (because the additional effort on your part is equivalent to you to a loss of $30,000). The minimum y that will induce you to work hard is the one that solves: 60,000+1,000,000y*0.8-30,000=60,000+1,000,000y*0.2. Therefore, y=5%.

18.

When potential borrowers know more than lenders about the future prospects of a projec to be undertaken with borrowed funds, the lender faces the problem of

A. asymmetric information B. free-riding C. government regulation D. default risk The described situation is one of asymmetric information: the borrower knows more relevant information about his type (riskiness, capability to repay, etc) than the lender.

19.

A positive duration gap implies which of the following?

I. The liabilities of the financial institution have a relatively shorter duration than its assets. II. The net worth of the financial institution will increase when interest rates go up. III. The net worth of the financial institution will decrease when interest rates go up. IV. This financial institution is not a bank. A. I and III only. B. II and IV only. C. I, III, and IV only. D. III and IV only.

20.

Government safety net in general, and deposit insurance in particular, I. support the depositors' faith in the banking system. II. ensure that bank managers avoid taking excessive risk. III. increase moral hazard on behalf of bank managers. IV. lead to more adverse selection because risky entrepreneurs are likely to want to become bank managers. V. add unnecessary regulatory burden on financial institutions. VI. increase competition between banks.

A. I, III, and IV only. B. III and IV only. C. II, IV, V, and VI only. D. II and V only. 21.

Specialization in lending

A. enables banks to analyze information more effectively B. prevents borrowers from defaulting on their loans C. can reduce the ability of financial institutions to diversify

D. both A and C. 22.

Bank capital performs which of the following functions? I. It is a cushion against bank failure. II. It increases competition in the financial system. III. It enables bank managers to engage in excessive risk-taking. IV. It aligns the incentives of bank owners with those of depositors because banks that have a lot of capital have more to lose if they take on excessive risks. V. It makes it more difficult for regulators to assess risk-taking by banks. A. II, III, and V only. B. I and IV only. C. I and III only. D. I, III, and IV only.

23.

Bank A has the following assets: reserves of $100, high-quality government bonds of $500, and residential mortgages of $500. Bank A's net worth is $100. Bank B has the following assets: reserves of $50, municipal bonds of $400, and corporate loans of $50. Bank B's net worth is $75. Which bank will be considered riskier according to the Basel methodology? Assume that the following risk weights apply: Reserves — 0% High-quality government bonds — 0% Residential mortgages — 50% Municipal bonds — 50% Corporate loans — 100%.

A. The relative riskiness of the two banks cannot be determined from the information provided. B. Bank B is riskier. C. Bank A is riskier. D. Both banks have the same level of risk First, calculate each bank's risk-weighted assets. Risk-weighted assets are $250 for both banks. Since the amount of capital that Bank B holds is lower than that of Bank A, it will be considered relatively more risky.

24.

Regulators may attempt to restrict bank competition in order to

A. increase prices of financial products for bank customers B. restrict asset holdings by banks C. reduce the efficiency of the financial system D. lessen banks' incentives to take on excessive risks. Restrictions on competition lessen banks' incentives to take on excessive risks. Less competition also means lower efficiency of the financial system and can increase the prices of financial products. These two consequences, however, are by-products of regulations, and not the intention of regulators.

25.

Delevereraging occurs when banks cut lending after their net worth declines. This process

A. leads to higher economic growth because banks become healthier B. negatively affects economic activity because firms find it more difficult to finance their operations. C. leads to higher inflation because people save less and consume more D. leads to greater bank regulation....