Create one question that could potentially be included in future final exams.

Suppose there are two ratings categories: A and B, along with default. The ratings-migration probabilities look like this for a B-rated loan:   Rating in 1 year Probability A 0.07 B 0.92 Default 0.01     The yield on A rated loans is 4%; the yield on B rated loans is 5%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 40% of its face value (e.g. $40) You have one loan in your portfolio, B-rated, 3-year, 5% coupon (paid annually), with $100 face value.   Compute the price of the loan next year (just before the first coupon is paid) if the borrower is upgraded to an A rating .

Consider the same four-year, Treasury bond that pays an 4 percent coupon annually and is trading at a yield to maturity of 5% Use the duration to approximate the change in bond price if interest rates increase by 2%

Use the following information on the given loan to answer the questions below- assume the payoffs occur one year from now and everything is normalized to a $1 investment:   Probability Loan payoffs Rf bond Corp Bond State 1 No Default 0.9 1.08 1.05 1.1 State 2 Default 0.1 0.90 1.05 0.5 Price ? $1 $.98   What is the market price of this loan?

Reserve-backed stablecoins most closely resemble which of the following financial intermediaries?

Which of the following is not a possible reason for IPO underpricing, as shown by the studies on this topic?

A Financial Institution (FI) originates a pool of 500 30-year mortgages with monthly payments, each averaging $150,000 with a mortgage coupon rate of 8 percent. Assume that the entire mortgage portfolio is securitized to be sold as GNMA pass-throughs. The GNMA credit risk insurance fee is 6 basis points and that the FI’s servicing fee is 19 basis points. Assume no prepayments. What is the total amount of monthly mortgage payments from mortgage borrowers to the pool?

A contractual commitment to make a loan up to a stated amount at a given interest rate in the future is a loan commitment. 

Suppose there are two ratings categories: A and B, along with default. The ratings-migration probabilities look like this for a B-rated loan:   Rating in 1 year Probability A 0.07 B 0.92 Default 0.01     The yield on A rated loans is 4%; the yield on B rated loans is 5%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 40% of its face value (e.g. $40) You have one loan in your portfolio, B-rated, 3-year, 5% coupon (paid annually), with $100 face value.   Compute next year’s expected value for the loan.

ST loans (6 months) $50M Demand Deposits $300M LT loans (5 years) $200M 3-Month CD $100M 3 month Treasuries $100M Equity $50M 30-year (fixed rate) mortgage $100M   Consider the above bank balance sheet. Using the Repricing (Funding GAP) Model using a 1-year horizon, what is the impact of a 1% rate increase on the net interest income of the bank? How does the assumption about whether demand deposits are rate sensitive impact this effect?