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A junk bond rating is
- BAA
- BBB and lower
- BB
- none of the above
Collateral does not reduce the risk of a loan per se, because
- it is not part of the loan agreement
- the risk of a loan is determined by the borrower’s willingness and ability to repay the loan
- it may be worth less than the bank thinks
- the bank may not have title to the collateral
The principal risks associates with real estate lending are:
- declining values
- defaults
- lack of liquidity
- all of the above
Which of the following risks cannot be hedged?
- Credit
- Liquidity
- Currency
- Duration
Step by step
Solved in 3 steps
- (please correct and incorrect option explain) Which of the following statements is correct? Credit spreads decrease with volatility Credit spreads increase with volatility Credit spreads do not depend on volatility The relation between credit spreads and volatility is nonlinear Which of the followings is not an important determinant of bond credit ratings? corporate governance risk business risk interest rate risk financial riskWhich of the following statements is false? A. Banks have high levels of liquidity assets and stable funding since the financial crisis. B. Compared with bonds with short-term duration, bonds with long-term duration have uncertainty regarding future creditworthiness. C. Expected loss can decrease with an increase in a bond’s recovery rate. D. Macaulay duration is calculated as modified duration divided by one plus the bond’s yield to maturity.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
- “Inside the company fixed income managers bought bonds but they did not keep them for very long at all. Instead, they were constantly buying, exchanging and selling the bonds in their portfolios” Explain why the behavior described in the above quote may happen in terms of interest-rate risk immunization and downgrade risk. Do not discuss speculation or arbitrage as causes of this behavior as these will not gain any credit in this examination.Which of the following statements is false? A. The sovereign credit rating is a risk of a national government becoming unable to satisfy its loan obligations. B. Bond prices are inversely related to spreads. C. Issuer credit ratings are based on the overall creditworthiness of the firm. D. Liquidity is observed when there is a large difference between the offered sale price and the bid price.Adverse selection is a problem associated with equity and debt contracts arising from the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. the borrower's lack of incentive to seek a loan for highly risky investments. 4. none of the choices.
- Please explain it why choosing option correct and wrong # Which of the following best describes interest rate risk? The risk that credit ratings will change, affecting the value of assets and liabilities The risk that banks will not be able to meet their liquidity requirements None of the above The risk that interest rates will rise or fall, affecting the value of assets and liabilitiesSelect all that are true regarding interest rate risk for the bank. A.Banksmakeprofitsfromhighratesondepositsandlowratesonloans. B.The steeper the yield curve, the more profitable the bank becomes. C.As long-term mortgage rates rise, borrowers are less likely to refinance or pay back their loans since they have locked in a lower rate, which results in slower than anticipated pay downs on the bank's MBS debt investment portfolio and a decrease in interest rate risk. D.When the short-end of the yield curve rises and the long-end falls, the bank's profits will increase. E.A bank's assets; money it lends out, and it's liabilities; money it uses to fund those assets, can mature or re-price at different times or at the same time.When borrowers tend to pay back the loans to bankers earlier, the bank is facing a. Repricing risk b. Yield curve risk c. Basis points risk d. Embedded options risk
- In considering the market-based approach to measuring credit risk, choose all statements that are correct: a) The Merton model is useful to price defaultable debt as long as the underlying company has exchange-traded stocks. b) In the Merton model, the only unknown parameter is the volatility of firm equity c) In the Merton model, the only unknown parameter is the volatility of firm value, which comprises equity and debt. d) CDS spreads cannot be used to imply default probabilities because recovery rates are variableWhich of the following statements is correct? Credit spreads decrease with volatility Credit spreads increase with volatility Credit spreads do not depend on volatility The relation between credit spreads and volatility is nonlinear Which of the followings is not an important determinant of bond credit ratings? corporate governance risk business risk interest rate risk financial riskWhich of the following statements is correct about corporate bond/ A.The corporate bond with AAA rating has zero default risk.All else equal,the corporate bond with better credit rating has lower yield to maturity B.Corporate bonds bonds have zero default risk and fixed coupon payments C.The corporate bond credit risk is assessed by the credit rating agency D.Default risk referto the likelihood that firm will walk away from the its bond obligations involuntarily
