28. Investors in mortgages are subject to ________ risk, which is generally not faced by investors in other markets (like bonds). * A) Prepayment B) Default C) interest rate D) liquidity 29. Which of the following does the most to reduce default risk for future contracts? * A) High Liquidity B) Flexible delivery arrangements C) Marking to market D) Credit checks for both buyers and sellers 30. A bank enters into an interest rate swap making annual fixed rate payments of 8% and receiving a floating rate equal to LIBOR + 2%. The notional principal on the swap is $10 million. What is the first net payment under the swap if LIBOR is 7%? * A) Bank pays $100,000 B) Bank receives $100,000 C) Bank pays $300,000 D) Bank receives $300,000 31. Projected future financial statements are called: * A) plug statements. B) pro forma statements. C) reconciled statements. D) aggregated statements. 32. The financial ratio measured as earnings before interest and taxes, divided by interest expense is the: * A) cash coverage ratio. B) debt-equity ratio. C) times interest earned ratio. D) gross margin. 33. Haviers has a profit margin of 6%, a return on assets of 8%, and an equity multiplier of 1.4. What is the return on equity? * A) 6.7% B) 8.4% C) 11.2% D) 14.6% 34. Annuities where the payments occur at the end of each time period are called _____ , whereas _____ refer to annuity streams with payments occurring at the beginning of each time period. * A) ordinary annuities; early annuities B) late annuities; straight annuities C) straight annuities; late annuities D) ordinary annuities; annuities due 35. Matron Company offers a common stock that pays an annual dividend of $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn 12% return on your equity investments? * A) $10.00 B) $13.33 C) $16.67 D) $18.88