one: multiple choice and true and false questions 1 2 (9 points) The investment portfolio contains assets, liabilities, and derivative contracts that can be quickly bought or sold on organized financial markets A B True False An FI purchases at par value a $10,000 Treasury bond paying 10 percent interest with a 3.5-year duration. If interest rates rise by 0.5 percent, calculate the bond's new value. Recall that Treasury bonds pay interest semi-annually. Use the duration valuation equation A 9,383 B 9,333 C 9,833 3 D None of the above City Bank has made a loan to Risky Corporation. The loan terms include a default risk-free borrowing rate of 4 percent, a risk premium of 4 percent, an origination fee of 0.18 percent, and 8 percent compensating balance requirement Required reserves at the Fed are 8 percent What is the expected or promised gross return on the loan A 5.83% B 8.83% C 6.65% D None of the above 4 5 6-7 During recessions, firms in the consumer nondurable goods sector do badly compared with those in the durable goods sector A True B False Longer-term loans are more likely to be made under floating-rate contracts than are relatively short-term loans. A B True False Suppose there were two factors influencing the past default behavior of borrowers: the leverage or debt-assets ratio (D/A) and the profit margin ratio (PM). Based on past default (repayment) experience, the linear probability model is estimated as: PD = 0.105(D/A) 0.35(PM). Prospective borrower A has a D/A 0.55 and a PM-5%, and prospective borrower B has a D/A = 0.45 and PM 4%. The prospective borrowers' expected probabilities of default of borrower B is A 5.08% B 3.33% C 4.03% D None of the above Prospective borrower B is the better than prospective borrower A. 7-7 A True