QUESTION 6

1. The returns obtained by investors of mutual funds include the following except

   	A.	capital appreciation in the underlying value of the assets held in the portfolio.
   	B.	dividend income earned on assets.
   	C.	interest income earned on assets.
   	D.	capital gains on assets sold by the fund.
   	E.	refunds of load charges and management fees.

1 points

QUESTION 7

1. Which of the following statements is FALSE?

   	A.	The repricing gap model is a book value accounting based model.
   	B.	In the repricing gap model, assets or liabilities are rate-sensitive within a given time period if the dollar values of each are subject to receiving a different interest rate should market rates change.
   	C.	The cumulative repricing gap position of an FI for a given extended time period is the sum of the repricing gap values for the individual time periods that make up the extended time period.
   	D.	A positive repricing gap implies that a decrease in interest rates will cause interest expense to decrease more than the decrease in interest income.
   	E.	All FIs tend to mismatch the maturities of their assets and liabilities to some extent.

1 points

QUESTION 8

1. An FI wants to evaluate the credit risk of a $10 million loan with a maturity of 6 years and a duration of 5.5 years to a AAA borrower. There are currently 100 publicly traded bonds in that class (i.e., bonds issued by firms with a AAA rating). The current average level of rates (R) on AAA bonds is 8 percent. The largest increase in credit risk premiums on AAA loans, the 99 percent worst-case scenario, over the last year was equal to 1.2 percent. The projected (one-year) spread on the loan is 0.4 percent and the FI charges 0.3 percent of the face value of the loan in fees. The FI's return of equity (ROE) is 12 percent. If the FI uses the RAROC model to evaluate the loan, it finds out that it should not approve the loan to the borrower.

   Assuming that the FI can only change the loan fees in order for this loan to be approved, the additional increase in the fees is closest to

   	A.	0.04%
   	B.	0.02%
   	C.	0.01%
   	D.	0.05%
   	E.	0.03%