FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Credit Risk: Individual Loan Risk

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

Onyx Corporation has a $200,000 loan that will mature in one year.The risk free interest rate is 6 percent.The standard deviation in the rate of change in the underlying asset's value is 12 percent,and the leverage ratio for Onyx is 0.8 (80 percent) .The value for N(h1) is 0.02743,and the value for N(h2) is 0.96406. What is the required yield on this risky loan?

A) 6.165 percent.
B) 6.00 percent.
C) 0.165 percent.
D) 5.835 percent.

E) B) and C)
F) A) and B)

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

All other things equal,longer term loans are more likely to be

A) variable-rate loans.
B) fixed-rate loans.
C) commitment loans.
D) lowest risk category loans.

E) C) and D)
F) B) and D)

Correct Answer

verified

Show Answer

Question 53

True/False

Review LaterAdd Note

RAROC (Risk-adjusted return on capital)is a measure of a firm's cost of debt.

Which of the following completes the statement: All else equal,the higher the duration of a loan,

Commercial loans have been decreasing in importance in bank loan portfolios.

A borrower's reputation is an example of a market-specific factor in the credit decision.

Because they are secured by homes,residential mortgages have demonstrated very little credit risk for FIs.

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually) : -Calculate the value of x (the implied forward rate on one-year maturity Treasuries to be delivered in one year) .

In making credit decisions,which of the following items is considered a market-specific factor?

Which of the following statements does NOT reflect credit decisions at the retail level?

Credit scoring models include all of the following broad types of models EXCEPT

Simulations by Moody's Analytics have shown which of the following models to be relatively better predictors of corporate failure and distress?

Commercial paper typically is secured by specific assets of the borrower.

Suppose that the financial ratios of a potential borrowing firm took the following values: X₁ = 0.30 X₂ = 0 X₃ = -0.30 X₄ = 0.15 X₅ = 2.1 Altman's discriminant function takes the form: Z = 1.2 X₁+ 1.4 X₂ + 3.3 X₃ + 0.6 X₄ + 1.0 X₅ Suppose X₃ = 0.2 instead of -0.30.According to Altman's credit scoring model,the firm would fall under which default risk classification?

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually) : -Using the term structure of default probabilities,the implied default probability for BBB corporate debt during the second year is

According to option pricing models of credit risk and default,the debt holders of a corporation may have to accept assets which have a value less than the face value of the debt.

In making credit decisions,which of the following items is considered a market-specific factor?

Adjustable rate mortgages have interest rates that adjust periodically according to the movement in some index.

The following represents two yield curves. $\begin{array} { | l r r | } \hline \text { Maturity } & \text { Pure Discount Treasury Yields } & \text { B-rated Carparate Band } \\\hline & & \text { Yields (Pure Discaun Bonds) } \\1 \text { year } & 3 \text { percent } & 6\text { percent }\\2 \text { year } & 6 \text { percent }& 10 \text { percent } \\20 \text { year } & 12 \text { percent }& 17 \text { percent } \\\hline\end{array}$ -What is the cumulative mortality rate of the A-rated and B-rated loans for year 2?

Because a compensating balance is the proportion of a loan that must be kept on deposit at the lending institution,the actual return to the lender on the usable portion of these loans is higher.