FIN 564 Week 4 Midterm (Multiple Choice Questions)

(TCO A) Of the following, the most likely effect of an increase in income tax rates would be to
(TCO A) An individual actually earned a 4% nominal return last year. Prices went up by 3% over the year. Given that the investment income was subject to a federal tax rate of 28% and a state, and local tax rate of 6%, what was the investor’s actual real after tax rate of return?
(TCO B) A 10-year annual payment corporate coupon bond has an expected return of 11% and a required return of 10%. The bond’s market price is
(TCO B) Convexity arises because
(TCO B) The major liability of the Federal Reserve is _____.
(TCO B) The Fed increases bank reserves in the system by $75 million. If there are no drains, the expected change in bank deposits is _____.
(TCO C) Oceanside bank converts a dollar of equity into 10 cents of net income and has $9.50 in assets per dollar of equity capital. Oceanside also has a profit margin of 15%. What is Oceanside’s AU ratio?
(TCO C) Loans past due 90 days or more, and loans that are not accruing interest because of problems of the borrower are called _____.
(TCO C) Which one of the following is the definition of the NIM?
(TCO C) A bank that has an equity to asset ratio equal to 12% can normally lend no more than _____ of its assets to any one borrower.

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