Question: Calculate the fair present value of the

> How does the location of money markets differ from that of capital markets?

> What is the relation between the expected rate of return and the required rate of return as they pertain to the fair market price and the current market price of a security?

> What is the difference between a required rate of return and an expected rate of return?

> What is meant by an off-balance-sheet activity? What are some of the forces responsible for them?

> How does the liability maturity structure of a bank’s balance sheet compare with the maturity structure of the asset portfolio? What risks are created or intensified by these differences?

> Repeat parts (a) through (c) of Problem 13 using a required rate of return on the bond of 11 percent. What do your calculations imply about the relation between time to maturity and bond price volatility? Data from Problem 13: Calculate the fair presen

> What are the three major segments of deposit funding? How are these segments changing over time? Why? What strategic impact do these changes have on the profitable operation of a bank?

> What type of transaction accounts do commercial banks issue? Which type of accounts have dominated the transaction accounts of banks?

> What are the principal liabilities for commercial banks? What does this liability structure tell us about the maturity of the liabilities of banks? What types of risks does this liability structure entail for commercial banks?

> Why do commercial banks hold investment securities?

> What are the principal types of financial assets for commercial banks? How has the relative importance of these assets changed over the past several decades? What are some of the forces that have caused these changes? What are the primary types of risk a

> What are the advantages and disadvantages of international expansion?

> For each of the following banking organizations, identify which regulatory agencies (OCC, FRB, FDIC, or state banking commission) may have some regulatory supervision responsibility. a. State-chartered, nonmember, non–holding company bank b. State-charte

> What are the major functions performed by the FDIC?

> Who are the major regulators of commercial banks? Which banks does each agency regulate?

> Which commercial banks are experiencing the highest profitability? Which commercial banks are experiencing the lowest profitability?

> Repeat parts (a) through (c) of Problem 11 using a required rate of return on the bond of 8 percent. What do your calculations imply about the relation between the coupon rates and bond price volatility? Data from Problem 11: Calculate the fair present

> How has the performance of the commercial banking industry changed in the last 30 years?

> What are the major sources of funds for commercial banks in the United States? What are the major uses of funds for commercial banks in the United States? For each of your answers, specify where the item appears on the balance sheet of a typical commerci

> Compare and contrast the profitability ratios (ROE and ROA) of banks with assets below and above $100 million in Figure 11–7 from 1990 through 2016. What conclusions can you derive from those numbers? Figure 11–7:

> How do small bank activities differ from large bank activities?

> What are the differences between community banks, regional banks, and money center banks? Contrast the business activities, locations, and markets of each of these bank groups.

> What is a money center bank and a regional bank?

> What challenges have been made to the commercial banking industry by nonbanks?

> The following balance sheet accounts (in millions of dollars) have been taken from the annual report for a U.S. bank. Arrange the accounts in balance sheet order and determine the value of total assets. Based on the balance sheet structure, would you cla

> What are the main off-balance-sheet activities undertaken by commercial banks?

> What types of activities are normally classified as off- balance-sheet (OBS) activities? a. How does an OBS activity move onto the balance sheet as an asset or liability? b. What are the benefits of OBS activities to a bank? c. What are the risks of OBS

> A $1,000 par value bond with five years left to maturity pays an interest payment semiannually with a 6 percent coupon rate and is priced to have a 5 percent yield to maturity. If interest rates surprisingly increase by 0.5 percent, by how much will the

> How does one distinguish between an off-balance-sheet asset and an off-balance-sheet liability?

> What is the difference between a call option and a put option?

> What is an option? How does an option differ from a forward or futures contract?

> Refer to Table 10–4. a. If you think five-year Treasury note prices will fall between August 3, 2016, and December 2016, what type of futures position would you take? b. If you think inflation in Japan will increase by more than that in

> What is the purpose of requiring a margin on a futures or option transaction? What is the difference between an initial margin and a maintenance margin?

> What are the functions of floor brokers and professional traders on the futures exchanges?

> What are the differences between a cap, a floor, and a collar? When would a firm enter any of these derivative security positions?

> What are the differences among a spot contract, a forward contract, and a futures contract?

> Which party is the swap buyer and which is the swap seller in an interest rate swap transaction?

> Who are the major regulators of futures and options markets?

> Based on economists’ forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory, plot the current yield curve. Make sure you

> What factors affect the value of an option?

> What are the three ways an option holder can liquidate his or her position?

> What must happen to the price of the underlying stock for the purchaser of a put option on the stock to make money? How does the writer of the put option make money?

> What must happen to the price of the underlying T-bond futures contract for the purchaser of a call option on T-bond futures to make money? How does the writer of the call option make money?

> What is a derivative security?

> If international capital markets are well integrated and operate efficiently, will FIs be exposed to foreign exchange risk? What are the sources of foreign exchange risk for FIs?

> What are the two primary methods of hedging FX risk for an FI? What conditions are necessary to achieve a perfect hedge through on-balance-sheet hedging? What are the advantages and disadvantages of off-balance-sheet hedging in comparison to on-balance-s

> What motivates FI managers to hedge foreign currency exposures? What are the limitations to hedging foreign currency exposures?

> What is the spot market for FX? What is the forward market for FX? What is the position of being net long in a currency?

> How are foreign exchange markets open 24 hours per day?

> How did the Bretton Woods and the Smithsonian Agreements affect the ability of foreign exchange rates to float freely? How did the elimination of exchange boundaries in 1973 affect the ability of foreign exchange rates to float freely?

> A U.S. insurance company invests $1,000,000 in a private placement of British bonds. Each bond pays £300 in interest per year for 20 years. If the current exchange rate is £1.364/$, what is the nature of the insurance company’s exchange rate risk? Specif

> If the Swiss franc is expected to depreciate relative to the U.S. dollar in the near future, would a U.S.-based FI in Bern City prefer to be net long or net short in its asset positions? Discuss.

> Why must the current account balance equal the value of the capital plus financial account balance (in opposite sign)?

> Why has the United States held a trade deficit for most of the 1990s and 2000s? Make sure you distinguish between the imports versus exports of goods and services.

> Explain the concept of interest rate parity. What does this concept imply about the long-run profit opportunities from investing in international markets? What market conditions must prevail for the concept to be valid?

> What is the purchasing power parity theorem?

> What is the implication for cross-border trades if it can be shown that interest rate parity is maintained consistently across different markets and different currencies?

> What are the major foreign exchange trading activities performed by financial institutions?

> What are foreign exchange markets and foreign exchange rates? Why is an understanding of foreign exchange markets important to financial managers and individual investors?

> The Wall Street Journal reports that the rate on four-year Treasury securities is 5.60 percent and the rate on five-year Treasury securities is 6.15 percent. According to the unbiased expectations theory, what does the market expect the one-year Treasury

> What is a market order? What is a limit order? How are each executed?

> What have been the trends in the growth of the major U.S. stock market exchanges?

> Describe the registration process for a new stock issue.

> What is the difference between cumulative and noncumulative preferred stock?

> What is the difference between nonparticipating and participating preferred stock?

> What is a dual-class firm? Why do firms typically issue dual classes of common stock?

> What is meant by the statement “common stockholders have a residual claim on the issuing firm’s assets”?

> What is an ADR? How is an ADR created?

> What are some characteristics associated with dividends paid on common stock?

> You have written a call option on Walmart common stock. The option has an exercise price of $74, and Walmart’s stock currently trades at $72. The option premium is $1.25 per contract. a. How much of the option premium is due to intrinsic value versus tim

> Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 12 years remaining to maturity, and have a required rate of return of 10 percent. a. The bond has a 6 percent coupon rate.

> You have taken a long position in a call option on IBM common stock. The option has an exercise price of $176 and IBM’s stock currently trades at $180. The option premium is $5 per contract. a. How much of the option premium is due to intrinsic value ver

> Suppose an investor has a $1 million long position in T-bond futures. The investor’s broker requires a maintenance margin of 4 percent, which is the amount currently in the investor’s account. a. Suppose also that the value of the futures contract drops

> Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 105100. Dudley Savings thinks interest rates will go down over the period of investment. a. Should the bank go long or short on the futures

> Tree Row Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 95-040. Tree Row thinks interest rates will go up over the period of investment. a. Should the bank go long or short on the futures contracts? b.

> Consider the following two financial institutions: Managers of the bank are concerned that interest rates may fall over the next four years, while managers of the savings association are concerned that interest rates may rise over the next four years.

> Suppose you purchase a Treasury bond futures contract at a price of 95 percent of the face value, $100,000. a. What is your obligation when you purchase this futures contract? b. Assume that the Treasury bond futures price falls to 94 percent. What is yo

> Consider the following two financial institutions: Managers of the money center bank are concerned that interest rates may fall over the next four years, while managers of the savings bank are concerned that interest rates may rise over the next four y

> A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate deposits costing 9 percent. A savings bank has $200 million of mortgages with a fixed rate of 13 p

> An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. A finance company has $50 million of auto loans

> An FI has purchased a $200 million cap of 9 percent at a premium of 0.65 percent of face value. A $200 million floor of 4 percent is also available at a premium of 0.69 percent of face value. a. If interest rates rise to 10 percent, what is the amount r

> Calculate the yield to maturity on the following bonds: a. A 9 percent coupon (paid semiannually) bond, with a $1,000 face value and 15 years remaining to maturity. The bond is selling at $985. b. An 8 percent coupon (paid quarterly) bond, with a $1,000

> A particular security’s equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.5 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is

> A factory manufactures jelly. The jars of jelly are packed six to a box, and the boxes are sold to grocery stores. The following types of cost were incurred: Required: Classify each of the costs as direct materials, direct labor, or overhead by using t

> Loring Company incurred the following costs last year: Required: 1. Classify each of the costs using the following table format. Be sure to total the amounts in each column. Example: Direct materials, $216,000. 2. What was the total product cost for

> Tidwell Company experienced the following during 20X1: a. Sold preferred stock for $480,000. b. Declared dividends of $150,000 payable on March 1, 20X2. c. Borrowed $575,000 from a bank on a 2-year note. d. Purchased $80,000 of its own common stock to ho

> Brunello Winery produces expensive wines. Brunello’s enterprise risk management team has chosen its particular risk response to each of its top five inherent risks. The risk graph below shows Brunello’s risks after all

> Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $384,000. The NC equipment will last 5 years with no expected salvage value. The ex

> Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Bo

> Barolo Company manufactures laptop stickers for Italian sports teams. Barolo’s risk management team has identified the company’s top five inherent risks and plans to manage them using a typical ERM portfolio perspectiv

> The Avila Division of Maldonado Company had operating income last year of $136,400 and average operating assets of $1,900,000. Maldonado’s minimum acceptable rate of return is 9%. (Note: Round all answers to two decimal places.) Required: 1. Calculate t

> Data follow for the Consumer Products Division of Kisler Inc.: Required: 1. Compute the margin and turnover ratios for each year. 2. Compute the ROI for the Consumer Products Division for each year. Year 1 Year 2 Sales $ 92,100,000 $ 98,750,000 Ope

> Pelak Company had sales of $25,000,000, expenses of $17,500,000, and average operating assets of $10,000,000. Required: Compute the (1) operating income, (2) margin and turnover ratios, and (3) ROI.

> Refer to the information for Slap shot Company on the previous page. Required: Prepare an income statement for Slap shot for the month of June. Data for Question 24: Slap shot Company makes ice hockey sticks and sold 1,880 sticks during the month of J

> Healing Hands Massage Hut offers high-end, specialized massages and grooming services, including manicures, pedicures, facials, and full-body massages. Healing Hands is a new startup service organization that generates monthly sales of $200,000. As a sta

> Refer to the information for Morning Smiles Coffee Company on the previous page. Required: Prepare an income statement for Morning Smiles for the month of March and calculate the percentage of sales revenue represented by each line of the income stateme

> Refer to the information for Morning Smiles Coffee Company on the previous page. Required: Prepare an income statement for Morning Smiles for the month of March. Data for Question 32: Morning Smiles Coffee Company manufactures Stoneware French Press c

> Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers. During the month of March, 8,100 coffee makers were completed at a cost of goods manufactured of $607,500. Suppose that on March 1, Morning Smiles had 1,000 units in finishe

> Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers. During the month of March, the company purchased $350,000 of materials. Also during the month of March, Morning Smiles incurred direct labor cost of $74,000 and manufacturin

> Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers. On March 1, Morning Smiles had $25,000 of materials in inventory. During the month of March, the company purchased $350,000 of materials. On March 31, materials inventory eq