What have been the trends in global securities trading and underwriting in the 1990s–2010s?
> A mutual fund has 300 shares of General Electric, currently trading at $30, and 400 shares of Microsoft, Inc., currently trading at $54. The fund has 1,000 shares outstanding. a. What is the NAV of the fund? b. If investors expect the price of General El
> You have been asked to analyze First Union Bank. You have only the following information on the bank at year-end 2018: Net income is $250,000, total debt is $2.5 million, and the bank’s debt ratio is 55 percent. What is First Union Bank’s ROE for 2018?
> Every town Bank has the following ratios: a. Profit margin: 5% b. Asset utilization: 20% c. Equity multiplier: 7.75× Calculate Every town’s ROE and ROA.
> Any town Bank has the following ratios: a. Profit margin: 21% b. Asset utilization: 11% c. Equity multiplier: 12× Calculate Any town’s ROE and ROA.
> An insurance company collected $3.6 million in premiums. and disbursed $1.96 million in losses. Loss adjustment expenses amounted to 6.6 percent and dividends paid to policyholders totaled 1.2 percent. The total income generated from their investments wa
> How would your answer for part (b) in Problem 9 change if the relationship of the price sensitivity of futures contracts to the price sensitivity of underlying bonds were [Δ R f / (1 + R f ) / ΔR / (1 + R) ] = br = 0.92?
> Community Bank has the following balance sheet, rates earned on its assets, and rates paid on its liabilities. If the bank earns $159,000 in noninterest income, incurs $306,000 in noninterest expenses, and pays $3,320,000 in taxes, what is its net inc
> Smallville Bank has the following balance sheet, rates earned on its assets, and rates paid on its liabilities. If the bank earns $120,000 in noninterest income, incurs $80,000 in noninterest expenses, and pays $2,500,000 in taxes, what is its net inc
> XYZ, Inc. has issued 10 million new shares of stock. An investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 8.4 million shares for $27 per share, and it charges XYZ $0.675 per share sold. How muc
> The financial statements for MHM Bank (MHM) are shown below: a. Calculate the dollar value of MHM’s earning assets. b. Calculate the dollar value of MHM’s interest-bearing liabilities. c. Calculate MHMâ€
> The MEP company has issued 5,000,000 new shares. Its investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 4,200,000 shares for $54 per share. It charges MEP $1.25 per share sold. How much money do
> Open-end Fund A has 165 shares of ATT valued at $35 each and 30 shares of Toro valued at $75 each. Closed-end Fund B has 75 shares of ATT and 72 shares of Toro. Both funds have 1,000 shares outstanding. a. What is the NAV of each fund using these prices?
> Your employer uses a career average formula to determine retirement payments to its employees. You have 20 years of service at the company and are considering retirement sometime in the next 10 years. Your average salary over the 20 years has been $50,00
> In 2018, Webb Sports Shop had cash flows from investing activities of $2,567,000 and cash flows from financing activities of $3,459,000. The balance in the firm’s cash account was $950,000 at the beginning of 2018 and $1,025,000 at the end of the year. C
> A bank is considering an investment in a municipal security that offers a yield of 6 percent. What is this security’s tax equivalent yield if the bank’s tax rate is 35 percent?
> An investor purchases a mutual fund for $50. The fund pays dividends of $1.50, distributes a capital gain of $2, and charges a fee of $2 when the fund is sold one year later for $52.50. What is the net rate of return from this investment?
> How do the financial asset holdings of defined benefit pension funds differ from those of defined contribution pension funds? Explain the differences.
> What are the major assets held by private pension funds in 1975 versus 2016? Explain the differences.
> What is the difference between an open-end mutual fund and a closed-end fund? What is the difference between an open end mutual fund and a unit investment trust?
> What are the principal demographics of household owners of mutual funds?
> What are the economic reasons for the existence of mutual funds?
> How does the risk of short-term funds differ from that of long-term funds?
> An investment bank pays $33.50 per share for 4 million shares of GM in a firm commitment stock offering. It then can sell those shares to the public for $32 per share. How much money does GM receive? What is the profit to the investment bank? What is the
> Using the data in Table 17–2, discuss the growth and ownership holdings over the last 36 years of long-term funds versus money market funds. Table 17–2: 1980 1990 1999 2002 2007 2008 2009 2011 2013 2016 Panel A:
> What are money market mutual funds? In what assets do these funds typically invest? What factors caused the strong growth in this type of fund over various periods from 1992 through 2009?
> What are long-term mutual funds? In what assets do these funds usually invest? What factors caused the strong growth in this type of fund during the 1990s and the decline in growth in the early and late 2000s?
> What is the difference between domestic hedge funds and offshore hedge funds? Describe the advantages of offshore hedge funds over domestic hedge funds.
> What types of fees do hedge funds charge?
> What are the different categories of hedge funds?
> What is a hedge fund and how is it different from a mutual fund?
> How have global mutual funds grown relative to U.S.-based mutual funds?
> What benefits do mutual funds have for individual investors?
> Discuss the improper trading abuses and improper assignment of fees for which mutual funds were prosecuted in the early 2000s.
> An investment bank pays $23.50 per share for 3,000,000 shares of the KDO company. It then sells these shares to the public for $25. How much money does KDO receive? What is the investment banker’s profit? What is the stock price of KDO?
> Who are the primary regulators of the mutual fund industry? How do their regulatory goals differ from those of other types of financial institutions?
> Why did the proportion of equities in long-term mutual funds increase from 38.3 percent in 1990 to 70.0 percent in 2007 and decrease back to 55.5 percent in 2008? How might an investor’s preference for a mutual fund’s objective change over time?
> What is a 12b-1 fee? Suppose that you have a choice between two mutual funds, one a load fund with no annual 12b-1 fees, and the other a no-load fund with a maximum 12b-1 fee. How would the length of your expected holding period influence your choice bet
> What is the difference between a load fund and a no-load fund? Is the argument that load funds are more closely managed and therefore have higher returns supported by the evidence presented in Table 17–6? Table 17–6:
> How might an individual’s preference for a mutual fund’s objective change over time?
> How is the net asset value (NAV) of a mutual fund determined? What is meant by the term marked-to-market daily?
> What are the three components of the return that an investor receives from a mutual fund?
> What change in regulatory guidelines occurred in 2009 that had the primary purpose of giving investors a better understanding of the risks and objectives of a mutual fund?
> What is the difference between an open-end mutual fund and an ETF closed-end fund? What is the difference between an open-end mutual fund and a unit investment trust?
> How does a public offering differ from a private placement?
> An investment bank agrees to underwrite a $500 million, 10-year, 8 percent semiannual bond issue for KDO Corporation on a firm commitment basis. The investment bank pays KDO on Thursday and plans to begin a public sale on Friday. What type of interest ra
> Explain the difference between the investing and investment banking activities performed by securities firms and investment banks.
> What are the key activity areas for securities firms? How does each activity area assist in the generation of profits and what are the major risks for each area?
> Contrast the activities of securities firms with other FIs.
> What are the different firms in the securities industry and how do they differ from each other?
> Identify the major regulatory organizations that are involved with the daily operations of the investment securities industry, and explain their role in providing smoothly operating markets.
> What was the significance of the National Securities Markets Improvement Act of 1996?
> Using Table 16–6, which type of security accounts for most underwriting in the United States? Which is likely to be more costly to underwrite: corporate debt or equity? Why? Table 16–6: Straight Corporate vertib
> An investment bank agrees to underwrite a $5,000,000 bond issue for the JCN corporation on a firm commitment basis. The investment bank pays JCN on Thursday and plans to begin a public sale on Friday. What type of interest rate movement does the investme
> How has the size of the securities firm and investment banking industry changed since the late 1980s?
> An investment bank agrees to underwrite an issue of 15 million shares of stock for Looney Landscaping Corp. a. The investment bank underwrites the stock on a firm commitment basis, and agrees to pay $12.50 per share to Looney Landscaping Corp. for the 15
> An investor notices that an ounce of gold is priced at $1,018 in London and $1,025 in New York. What action could the investor take to try to profit from the price discrepancy? Which of the six trading activities would this be? What might be some impedim
> What was the largest single asset and largest single liability of securities firms in 2015?
> How did the financial crisis affect the performance of securities firms and investment banks?
> What factors contributed to the significant decrease in profits for securities firms in the early 2000s and the resurgence in profits in the middle of the first decade of the 2000s?
> What three factors accounted for the resurgence in profits for securities firms from 1991 to 2000?
> Why have brokerage commissions earned by securities firms fallen since 1977?
> How do agency transactions differ from principal transactions for market makers?
> What is the difference between pure arbitrage and risk arbitrage? If an investor observes the price of a stock trading in one exchange to be different from its price in another exchange, what form of arbitrage is applicable and how could the investor par
> How does the regulation of insurance companies compare with that of depository institutions?
> If an insurance company decides to offer a corporate customer a private pension fund, how would this change the balance sheet of the insurance company?
> Calculate the following: a. Suppose a 60-year-old person wants to purchase an annuity from an insurance company that would pay $15,000 per year until the end of that person’s life. The insurance company expects this person to live for 20 more years and w
> 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 association has $200 million of mortgages with a fixed rate
> How can life insurance and annuity products be used to create a steady stream of cash disbursements and payments to avoid either the payment or receipt of a single lump sum cash amount?
> Explain how annuities represent the reverse of life insurance activities.
> What are the similarities and differences among the four basic lines of life insurance products?
> How has the composition of the assets of U.S. life insurance companies changed over time?
> Contrast the balance sheets of depository institutions with those of life insurance firms.
> What is the investment yield on premiums earned? Why has this ratio become so important to property–casualty insurers?
> How is the combined ratio defined? What does it measure?
> What does the expense ratio measure? Identify and explain the two major sources of expense risk to a property– casualty insurer. Why has the long-term trend in this ratio been decreasing?
> What is the adverse selection problem? How does adverse selection affect the profitable management of an insurance company?
> What does the loss ratio measure? What has been the long term trend of the loss ratio? Why?
> Calculate the following: a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $20,000 per year until the end of that person’s life. The insurance company expects this person to live for 15 more years and w
> Contrast the balance sheet of a property–casualty insurance company with the balance sheet of a commercial bank. Explain the balance sheet differences in terms of the differences in the primary functions of the two organizations.
> Which of the insurance lines listed below will be charged a higher premium by insurance companies and why? a. Low-severity, high-frequency lines versus high-severity, low-frequency lines. b. Long-tail versus short-tail lines.
> How do increases in unexpected inflation affect P&C insurers?
> Identify four characteristics or features of the perils insured against by property–casualty insurance. Rank the features in terms of actuarial predictability and total loss potential.
> What are the three sources of underwriting risk in the P&C industry
> How have P&C industry product lines based on net premiums written by insurance companies changed over time?
> What are the two major lines of property–casualty (P&C) insurance firms?
> How do life insurance companies earn profits?
> How do state guarantee funds for life insurance companies compare with deposit insurance for depository institutions?
> How does the primary function of an insurance company compare with that of a depository institution?
> You deposit $12,000 annually into a life insurance fund for the next 30 years, after which time you plan to retire. a. If the deposits are made at the beginning of the year and earn an interest rate of 7 percent, what will be the amount of retirement fun
> How and why is credit union membership limited?
> What does it mean when a savings institution is a mutual organization?
> What are the main assets and liabilities held by savings institutions?
> What two major pieces of legislation were adopted in the late 1980s and early 1990s to ameliorate the thrift crisis? Explain.
> What signal does a low debt-to-assets ratio for a finance company send to the capital markets?
> What is a wholesale motor vehicle loan?
> Why have finance companies begun to offer more mortgage and home equity loans?
> Why are finance companies less regulated than commercial banks?
> What advantages do finance companies have over banks in offering services to small-business customers?
> Why was the reported rate on motor vehicle loans historically higher for a finance company than a commercial bank? Why did this change in 1997?
> You deposit $10,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire. a. If the deposits are made at the beginning of the year and earn an interest rate of 8 percent, what will be the amount in the retirement
