Question

Bank X has $10 billion dollars of thirty year mortgages as assets and $8 billion of FDIC insured deposits with an average maturity of 1 month. If the yield on thirty year mortgages increases by 150 basis points and the increase in deposit rates increase by 50 basis points the net worth of the bank will:

Decrease

First increase and then decrease

Remain the same

Increase

If the yield curve shifts up in (interest rates along the curve all change by the same number of basis points) and the bank is funded with liabilities that have shorter maturities than its assets; the value of the bank will decline.

True

False

QUESTION 16

Use the following data about a fixed coupon corporate bond to answer the following question.

The yield to maturity of the bond is greater than 13%

settlement		11/14/2016
maturity		11/14/2026
rate	10%
price	75
redemption	100
frequency	2
basis	0

True

False

3.7037 points   

QUESTION 17

Use the following data about a fixed coupon corporate bond to answer the following question.

The yield to maturity of the bond is greater than 8%        

settlement		11/14/2016
maturity		11/14/2026
rate	10%
price	101
redemption	100
frequency	2
basis	0

True

False

3.7037 points   

QUESTION 18

Use the following data about a fixed coupon corporate bond to answer the following question.

The yield to maturity of the bond is greater than 11%     

settlement		11/14/2016	10.3254%
maturity		11/14/2026
rate	10%
price	98
redemption	100
frequency	2
basis	0

True

False

Answer 1

1)Decrease since the assets are lowering value more than the liabilites
2)True
3)rate formaule in excel to find price of bond
=rate(nper,pmt,pv,fv,type)
=rate(20,(100*10%/2),-75,100,0)
=7.44%
yearly=7.44%*2=14.88%
so it is true
4)rate formaule in excel to find price of bond
=rate(nper,pmt,pv,fv,type)
=rate(20,(100*10%/2),-101,100,0)
=4.92%
yearly=4.92%*2=9.84%
so it is true
5)rate formaule in excel to find price of bond
=rate(nper,pmt,pv,fv,type)
=rate(20,(100*10%/2),-98,100,0)
=5.16%
yearly=5.16%*2=10.32%
so it is false