Q. 17 In order to achieve a zero leverage adjusted duration gap, a financial institution with negative leverage adjusted duration gap (DA-kDL<0) can increase the duration of the asset portfolio by MCQ- choose the correct option Issuing long term bonds Selling long term bonds in the asset portfolio, replace them with short term bonds Using securitisation to take high duration mortgage loans off the balance sheet Issuing short term bonds Selling short term bonds in the asset portfolio, replace them with long term bonds

Q. 17 In order to achieve a zero leverage adjusted duration gap, a financial institution with negative leverage adjusted duration gap (DA-kDL<0) can increase the duration of the asset portfolio by MCQ- choose the correct option Issuing long term bonds Selling long term bonds in the asset portfolio, replace them with short term bonds Using securitisation to take high duration mortgage loans off the balance sheet Issuing short term bonds Selling short term bonds in the asset portfolio, replace them with long term bonds

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 8Q

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In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap can reduce the duration of liability portfolio by Selling long term bonds in the asset portfolio, replace them with short term bonds Issuing long term bonds, use the funds to buy short term assets Selling short term bonds in the asset portfolio, replace them with long term bonds Issuing short term bonds, use the funds to buyback its long term bonds
QUESTION 18 What will be the effect of using book value of debt in WACC decisions if interest rates have decreased substantially since a firm's long-term bonds were issued? OA Cannot be determined without knowing interest rates. OB. The debt to-value ratio will be overstated. OC The debt-to-value ratio will be understated. OD. There will be no effect on WACC decisions.
Loans are collateralized to:a increase returnsb increase liquidityc reduce concentration riskd all of the above Contingency liquidity support includes:a sale of short term securitiesb repo agreementsc secured line of credit from another financial institutiond sale of equity
Q.Which of the following is not true about maturity matching current asset financing? Select one: a. Temporary current assets will be financed using short term debt. b. It is easy to match equipment maturities with the maturity of debt instruments. c. The use of equity is difficult to classify as equity lacks a maturity date. d. Fixed assets and the permanent level of current assets are financed with long-term debt of varying maturities. e. All of the above are true about current asset financing.
Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets
An inverted yield curve Part 1 A. results when investor demand for longer maturities exceeds the demand for shorter maturities. B. rewards longterm investors for the additional risk they are assuming. C. sometimes results from actions by the Federal Reserve to control inflation. D. means that longterm bonds are yielding more than shortterm bonds.
When a firm gets riskier what will happen to its bonds Multiple Choice the stated interest rate of the bonds will not change the stated interest rate of the bonds will go up there is no definite answer the stated interest rate of the bonds will go down
Select the correct statement: The value of a premium bond will fall over time, if cost of debt (rd) decreases The value of a discount bond will fall over time, if cost of debt (rd) does not change The value of a discount bond will increase ove time, if cost of debt (rd) does not change The value of a premium bond will increase over time, if cost of debt (rd) does not change
Next, we need to calculate MMMs cost of debt. We can use different approaches to estimate it One approach is to take the companys interest expense and divide it by total debt (which is the sum of short-term debt and long-term debt). This approach only works if the historical cost of debt equals the yield to maturity in todays market (i.e., if MMMs outstanding bonds are trading at dose to par). This approach may produce misleading estimates in years in which MMM issues a significant amount of new debt. For example, if a company issues a great deal of debt at the end of the year, the full amount of debt will appear on the year-end balance sheet, yet we still may not see a sharp increase in annual interest expense because the debt was outstanding for only a small portion of the entire year. When this situation occurs, the estimated cost of debt will likely understate the true cost of debt. Another approach is to try to find this number in the notes to the companys annual report by accessing the company's home page and its Investor Relations section. Alternatively, you can go to other external sources, such as bondsonline.com, for corporate bond spreads, which can be used to find estimates of the cost of debt. Finally, you can also go to Morningstar.com, which will provide yield to maturity information on the firms various bond issues. A longer-term issues YTM could provide an estimate of the firms current cost of debt to be used in the WACC calculation. Remember that you need the after-tax cost of debt to calculate a firm's WACC, so you will need MMMs tax rate (which has averaged around 30% in recent years). What is your estimate of MMMs after-tax cost of debt?
[S1] Prices of existing bonds move upward as marketinterest rates move downward. [S2] Assuming the samenominal interest rate, the investment with the higher riskwill have a higher value.
____ occurs when a firm calls a relatively high interest rate issue and replaces it with a lower interest rate issue. a. Bond refunding b. A call feature c. A sinking fund d. Indenture refinancing
21 Which one of the following best describes the purpose of derivatives markets? Multiple Choice O Earning interest income Investing for a short time period to earn a small rate of return. Transferring risk from one party to another. Investing for retirement