BFA 403

BFA 403 | Financial Institutions &Markets | Emirates College Of Technology  

Question 1:Answer the following questions:  

1.      Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months.  For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share.  If you buy this option for $310.25 and Johnson's stock price actually rises to $45, what would your pre-tax net profit be                                                           

2.      Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months.  For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share.  If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be?      

Question 2: Answer the following question:   (10Marks)

Ø Construct an amortization schedule for the first three months and the final three months of payments for a 30-year, 7 percent mortgage in the amount of $90,000. What percentage of the third payment is principal? What percentage of the final payment is principal? What do these differences imply? (Hint: The balance after the 357th payment is $1,775.56, and the monthly payments is: $598.77)

Question 3: Answer the following questions: 

1.

Why are loans such a high percentage of total assets at the typical bank? What four broad classes of loans do banks engage in?             

2.

Most nonfinancial firms would never hold as much of their assets in safe liquid securities as banks do. Why do banks maintain such a high percentage of investment in securities?

1.    Calculate the bank’s asset utilization ratio (AU).                                                     (2 Marks)

Question 4: Answer the following questions:  

1.How do Sales finance companies differ from Personal credit and Business credit institutions? List an example of each                         

2.

An FI's position in FX markets generally reflects four trading activities. What are they, and which one(s) cause the FI to bear FX risk?         

3.

Today, Stock A is worth $20 and has 1,000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1,200 shares outstanding. If, tomorrow, Stock A is priced at $22, Stock B at $35, and Stock C is worth $48, what would the value-weighted index amount equal? (The index has a base period value of 100.)