If a U.S. bank is holding Japanese yen in its portfolio, what type of exchange rate movement would the bank be most concerned about?
> Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1 R 1 = 6%, E( 2 r 1 ) = 7%, E( 3 r 1 ) = 7.5%, E( 4 r 1 ) = 7.85%
> The following are the foreign currency positions of an FI, expressed in the foreign currency: The exchange rate of dollars for Sf is 1.02, of dollars for British pound is 1.31, and of dollars for yen is 0.00953.The following are the foreign currency po
> P.J. Chase Stanley Bank holds $75 million in foreign exchange assets and $68 million in foreign exchange liabilities. P.J. Chase Stanley also conducted foreign currency trading activity in which it bought $165 million in foreign exchange contracts and so
> Citibank holds $23 million in foreign exchange assets and $18 million in foreign exchange liabilities. Citibank also conducted foreign currency trading activity in which it bought $5 million in foreign exchange contracts and sold $12 million in foreign e
> Suppose that, instead of funding the $200 million investment in 10 percent German loans with U.S. CDs, the FI manager in Problem 10 funds the German loans with $200 million equivalent one-year euro CDs at a rate of 7 percent. Now the balance sheet of the
> Suppose that a U.S. FI has the following assets and liabilities: The promised one-year U.S. CD rate is 4 percent, to be paid in dollars at the end of the year; one-year, default risk–free loans in the United States are yielding 6 per
> Refer to Table 9–1. a. What was the spot exchange rate of Canadian dollars for U.S. dollars (USD/CAD) on July 15, 2016? b. What was the six-month forward exchange rate of Canadian dollars for U.S. dollars (USD/CAD) on July 1
> Use the information in the following stock quote to calculate McKesson’s earnings per share over the last year. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) Net 52 Week 52 Week YTD Name Symbol Open High Low Clo
> Refer to the stock market quote in Table 8–1. a. What was the closing stock price for Abercrombie & Fitch on July 6, 2016? b. What was the dividend yield on El Paso Electric stock as of July 7, 2016. c. What were the earnings per s
> Suppose you own 100,000 shares of common stock in a firm with 12.5 million total shares outstanding. The firm announces a plan to sell an additional 2.5 million shares through a rights offering. The market value of the stock is $22.50 before the rights o
> Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional 1 million shares through a rights offering. The market value of the stock is $35 before the rights offering
> Suppose the Federal Reserve instructs the Trading Desk to purchase $1 billion of securities. Show the result of this transaction on the balance sheets of the Federal Reserve System and commercial banks.
> Suppose a firm has 50 million shares of common stock outstanding and eight candidates are up for election to six seats on the board of directors. a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensu
> Use the information in the following stock quote to calculate Abercrombie & Fitch’s earnings per share over the last year. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) Net 52 Week 52 Week YTD Symbol Open Hi
> Suppose a firm has 15 million shares of common stock outstanding and six candidates are up for election to five seats on the board of directors a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure
> You plan to purchase a $240,000 house using either a 30-year mortgage obtained from your local bank with a rate of 5.75 percent, or a 15-year mortgage with a rate of 5.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calcu
> You plan to purchase a $200,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 7.25 percent, or a 15-year mortgage with a rate of 6.50 percent. You will make a down payment of 20 percent of the purchase price.
> You plan to purchase a $200,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 6.50 percent. You will make a down payment of 20 percent of the purchase price a. Calculate your monthly payments on
> You plan to purchase a $150,000 house using a 15-year mortgage obtained from your local credit union. The mortgage rate offered to you is 5.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments o
> You plan to purchase an $80,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 8.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this m
> You plan to purchase a $175,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 7.75 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this m
> You plan to purchase a $300,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 4.50 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgag
> MHM Bank currently has $250 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is increasing this requirement to 12 percent. a. Show the balance sheet of the Federal Reserve and MH
> You plan to purchase a $220,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 4.75 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgag
> You plan to purchase a house for $175,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 25 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options
> You plan to purchase a house for $195,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options
> You plan to purchase a house for $115,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. a. Your bank offers you the following two options
> You plan to purchase a $100,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 8.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments
> A municipal bond you are considering as an investment currently pays a yield of 6.75 percent. a. Calculate the tax equivalent yield if your marginal tax rate is 28 percent. b. Calculate the tax equivalent yield if your marginal tax rate is 21 percent.
> Consider an investor who, on January 1, 2020, purchases a TIPS bond with an original principal of $100,000, a 4.50 percent annual (or 2.25 percent semiannual) coupon rate, and 5 years to maturity. (LG 6-2) a. If the semiannual inflation rate during the
> Consider an investor who, on January 1, 2019, purchases a TIPS bond with an original principal of $100,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity. a. If the semiannual inflation rate during the first six mont
> On July 10, 2019, you purchase a $10,000 T-note that matures on December 31, 2028 (settlement occurs one day after purchase, so you receive actual ownership of the bond on July 11, 2019). The coupon rate on the T-note is 2.125 percent and the current pri
> On October 5, 2019, you purchase a $10,000 T-note that matures on August 15, 2031 (settlement occurs one day after purchase, so you receive actual ownership of the bond on October 6, 2019). The coupon rate on the T-note is 4.375 percent and the current p
> National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. a. Show the balance sheet of the Federal Reserve an
> Refer to Table 6–1. a. Verify the May 23, 2016, asked yield of 1.09 percent on the Treasury bond, stripped principal STRIPS maturing August 2019. Use a one-day settlement period from the date of purchase (i.e., ownership occurs on Wedne
> Gentherm Inc. has a convertible bond issue outstanding. Each bond, with a face value of $1,000, can be converted into common shares at a rate of 42.25 shares of stock per $1,000 face value bond (the conversion rate), or $19.85 per share. Gentherm’s commo
> Refer again to Table 6–1. a. Verify the asked price on the 0.875 percent November 30, 2017 T-note for Monday, May 23, 2016. The asked yield on the note is 0.849 percent and the note matures on November 30, 2017. Settlement occurs one b
> Hilton Hotels Corp. has a convertible bond issue outstanding. Each bond, with a face value of $1,000, can be converted into common shares at a rate of 61.2983 shares of stock per $1,000 face value bond (the conversion rate), or $16.316 per share. Hilton’
> A $1,000 face value corporate bond with a 6.75 percent coupon (paid semiannually) has 10 years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm recently became more financially stable and the rating agen
> A $1,000 face value corporate bond with a 6.5 percent coupon (paid semiannually) has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and the rating agency
> Refer to Table 6–7. a. What was the closing price on the Chevron 2.954 percent coupon bonds on Monday, May 23, 2016? b. What was the S&P bond rating on Walgreens 3.800 percent coupon bonds maturing in 2024 on May 23, 2016? c. What w
> You can purchase a T-bill that is 95 days from maturity for $9,965. The T-bill has a face value of $10,000. a. Calculate the T-bill’s quoted yield. b. Calculate the T-bill’s bond equivalent yield. c. Calculate the T-bill’s EAR.
> You have just purchased a three-month, $500,000 negotiable CD, which will pay a 5.5 percent annual interest rate. a. If the market rate on the CD rises to 6 percent, what is its current market value? b. If the market rate on the CD falls to 5.25 percent,
> MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par. a. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? What will be the new prices if
> BSW Bank currently has $150 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 6 percen
> An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as its measure of interest rate risk: a. $10,000 par value, coupon rate = 8%, rb = 0.10 b. $10,000 par value, c
> Suppose that you purchase a bond that matures in five years and pays a 13.76 percent annual coupon rate. The bond is priced to yield 10 percent. a. Show that the duration is equal to four years. b. Show that if interest rates rise to 11 percent next year
> What should happen to a security’s nominal interest rate as the security’s liquidity risk increases?
> If we observe a one-year Treasury security rate higher than the two-year Treasury security rate, what can we infer about the one-year rate expected one year from now?
> Which of the capital market instruments is the largest in terms of dollar amount outstanding in 2016?
> What are the major instruments traded in capital markets?
> A bank has issued a six-month, $5 million negotiable CD with a 0.35 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately
> Which of the money market instruments is the largest in terms of dollar amount outstanding in 2016
> What is meant by the term depository institution? How does a depository institution differ from an industrial corporation?
> What are the main advantages of being a member of the Federal Reserve System?
> What has been the recent trend in the number of commercial banks in the United States? What factors account for this trend?
> What countries have the largest commercial banks?
> What countries have the most international debt securities outstanding?
> What is the meaning of a Treasury bond futures price quote of 103-13?
> Classify the following financial instruments as money market securities or capital market securities: a. Banker’s acceptances b. Commercial paper c. Common stock d. Corporate bonds e. Mortgages f. Negotiable certificates of deposit g. Repurchase agreemen
> An American firm has British pound–denominated accounts payable on its balance sheet. Managers believe the exchange rate of British pounds to U.S. dollars will depreciate before the accounts will be paid. What type of currency swap should the firm enter?
> A commercial bank has fixed-rate, long-term loans in its asset portfolio and variable-rate CDs in its liability portfolio. Bank managers believe interest rates will increase in the future. What side of a fixed-floating rate swap would the commercial bank
> Consider the following. a. What is the duration of a four-year Treasury bond with a 10 percent semiannual coupon selling at par? b. What is the duration of a three-year Treasury bond with a 10 percent semiannual coupon selling at par? c. What is the dura
> What is a swap?
> What is the difference between an interest rate swap and a currency swap?
> One form of the interest rate parity equation appears as 1 + rUSt = (1/St) × (1 + rUKt) × Ft where both the spot and forward rates are expressed in terms of dollars for pounds or direct exchange rates. How would the equation be written if the exchange ra
> What are some reasons why interest rate parity may not hold in spite of the economic forces that should ensure the equilibrium relationship?
> Which type of bond—a mortgage bond, a debenture, or a subordinated debenture—generally has the a. Highest cost to the bond issuer? b. Least risk to the bond holder? c. Highest yield to the bond holder?
> What is the economic meaning of duration?
> When is a futures or option trader in a long versus a short position in the derivative contract?
> For each of the following situations, identify whether a bond would be considered a premium bond, a discount bond, or a par bond. (LG 3-2) a. A bond’s current market price is greater than its face value. b. A bond’s coupon rate is equal to its yield to m
> Classify the following transactions as taking place in the primary or secondary markets: a. IBM issues $200 million of new common stock. b. The New Company issues $50 million of common stock in an IPO. c. IBM sells $5 million of GM preferred stock out of
> You have purchased a put option on Pfizer common stock. The option has an exercise price of $27 and Pfizer’s stock currently trades at $29. The option premium is $0.50 per contract. a. What is your net profit on the option if Pfizer’s stock price does no
> A bank has issued a six-month, $2 million negotiable CD with a 0.52 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately
> At the beginning of the quarter, you purchased a $100,000 Treasury bond futures contract for 108-12. Calculate the profit on the futures contract if the price at the end of the quarter is 106-16, 108-20, 110-8, and 112-02. Price at Price at = The Pr
> A stock is currently selling for $75 per share. You could purchase a call with a strike price of $70 for $7. You could purchase a put with a strike price of $70 for $2. Calculate the intrinsic value of the call option.
> You buy an at-the-money March call option on MMC Corp. common stock, which has a strike price of 15 and a premium of 2.83. What must happen to the price of MMC Corp. stock for you to make a profit?
> X-IM Bank has ¥14 million in assets and ¥23 million in liabilities and has sold ¥8 million in foreign currency trading. What is the net exposure for X-IM? For what type of exchange rate movement does this exposure put the bank at risk?
> Suppose that on January 18, 2019, a U.S. firm plans to purchase 3 million euros’ (€) worth of French bonds from a French FI in one month’s time. The French FI wants payment in euros. Thus, the U.S. fir
> At the beginning of the year, you purchased a share of stock for $50. Over the year the dividends paid on the stock were $4.50 per share. Calculate the return if the price of the stock at the end of the year is $40, $48, $50, and $55. Price at Price
> At the beginning of the year, you purchased a share of stock for $35. Over the year the dividends paid on the stock were $2.75 per share a. Calculate the return if the price of the stock at the end of the year is $30. b. Calculate the return if the price
> Refer to the stock market quote in Table 8–1. a. What was the closing stock price for Abbott Laboratories on July 7, 2016? b. What were the high and low prices at which McDonald’s traded between July 7, 2015, and July
> What is the monthly payment on a $150,000, 30-year mortgage if the mortgage rate is 5.75 percent? 6.25 percent? 7.5 percent? 9 percent? Present Interest The Payment Periods Value Rate Will Be $150,000 30 x 12 5.75%/12 $ 875.3
> What is the monthly payment on a $150,000, 15-year mortgage if the mortgage rate is 5.75 percent? 6.25 percent? 7.5 percent? 9 percent? Present Interest The Payment Periods Value Rate Will Be $150,000 150,000 150,000 150,000
> Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 12 percent. a. What is the price of the bond? b. If the rate of interest increases 1 percent, what will be the bond’s new price? c. Using yo
> You can invest in taxable bonds that are paying a yield of 9.50 percent or a municipal bond paying a yield of 7.75 percent. If your marginal tax rate is 21 percent, which security bond should you buy?
> What is the bond quote for a $1,000 face value bond with an 8 percent coupon rate (paid semiannually) and a required return of 7.5 percent if the bond is 6.48574, 8.47148, 10.519, and 14.87875 years from maturity? Periodic The Bond Face Value Coupon
> A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 4.50 percent yield to maturity and a similar risk corporate bond that offers a 6.45 percent yield. Which bond will give the client more profit after taxes?
> Refer to Table 6–7. Verify the yield of 4.403 percent on the Southern bonds with a coupon of 4.400 percent and a maturity date of July 1, 2046. Settlement occurs two days after purchase, so actual ownership of the bond occurs on May 25,
> Use the bond pricing formula and Table 6–6 to calculate the number of years (to the nearest 1/1000th of a year) between the May 25, 2016, settlement date and the maturity date on the City of New York general obligation bonds maturing on
> Refer to Table 6–6. Verify the yield to maturity of 4.69 percent on the State of Illinois municipal bonds. Settlement occurs two days after purchase, so actual ownership of the bond occurs on May 25, 2016. Table 6–6:
> Refer to Table 6–6. a. On May 23, 2016, what were the coupon rate, price, and yield on municipal bonds issued by the Delaware River Port Authority? b. What was the yield to maturity, on May 23, 2016, on State of California bonds maturin
> Refer to the T-note and T-bond quotes in Table 6–1. a. What is the asking price on the 2.750 percent November 2023 T-bond if the face value of the bond is $10,000? b. What is the bid price on the 0.500 percent August 2016 T-note if the
> What is the bid price of a $10,000 face value T-bill with a bid rate of 2.23 percent if there are 10, 25, 50, 100, and 250 days to maturity? Face Bid The Answer Days to Maturity Value Rate Will Be $10,000 10,000 $9,993.81 9,984.51 2.23% 10 2.23 25 1
> Refer to Table 5–5. a. Calculate the ask price of the T-bill maturing on September 1, 2016, as of May 16, 2016. b. Calculate the bid price of the T-bill maturing on November 10, 2016, as of May 16, 2016. Table 5–5:
> Consider a 12-year, 12 percent annual coupon bond with a required rate of return of 10 percent. The bond has a face value of $1,000. a. What is the fair present value of the bond? b. If the required rate of return rises to 11 percent, what is the fair pr
> Suppose you purchase a T-bill that is 125 days from maturity for $9,765. The T-bill has a face value of $10,000. a. Calculate the T-bill’s quoted discount yield. b. Calculate the T-bill’s bond equivalent yield.
> You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days from maturity. The current price of the Treasury bill is $9,875. Calculate the discount yield on this Treasury bill.
> Calculate the bond equivalent yield and effective annual return on fed funds that are 3 days from maturity and have a quoted yield of 0.25 percent.
> Calculate the bond equivalent yield and effective annual return on a negotiable CD that is 115 days from maturity and has a quoted nominal yield of 6.56 percent.
