Q.1 Explain the difference between a private placement and public distribution of a bond. Discuss the impact of bond ratings.
Q.2. Explain how the reinvestment rate for inflows may materially affect the final value of an investment. Understand why investors are attracted to convertible securities and warrants.
Q.3. Describe speculative and hedging strategies with options. Explain how option contracts are closed out at expiration.
1. To what different kinds of risk are banks and their financial-service competitors subjected today?
2. What forces cause interest rates to change? What kinds of risk do financial firms face when interest rates change?
3. What is the yield curve, and why is it important to know about its shape or slope?
4. A bank reports that the total amount of its net loans and leases outstanding is $936 million, its assets total $1,324 million, its equity capital amounts to $110 million, and it holds $1,150 million in deposits, all expressed in book value. The estimated market values of the bank’s total assets and equity capital are $1,443 million and $130 million, respectively. The bank’s stock is currently valued at $60 per share with annual per-share earnings of $2.50. Uninsured deposits amount to $243 million and money-market borrowings total $132 million, while nonperforming loans currently amount to $43 million and the bank just charged off $21 million in loans.
Calculate risk measures as you can from the foregoing data.
Liquidity Risk, Interest Rate Risk, Capital Risk, Credit Risk, Price Risk