1. A bank has assets valued at $1,000,000. These assets are funded with $80,000 of equity. The leverage ratio for this institution is:
a.12.5
b.10.5
c.125/1
d.105/1
e.20
f.20.5
2. The maximum debt equity ratio for fund HEDGE is 30. Currently the debt equity ratio is 40. The fund has recievd a margin call. The managers must deposit at least $x of addtional collateral to meet the margin call. Assets = $100.
a.$0.25
b.$0.34
c.$0.26
d.$0.30
3. The required debt to equity ratio is 9. Debt outstanding is $90. Asset value is $100. If asset value falls to $91 what amount of assets must be sold to repay debt so that the debt equity ratio is restored to 9?
a.$90
b.$81
c.$18
d.$91
4. A hedge fund has a leverage ratio of 20. If the value of the assets on its balance sheet increases by 15% by what percent does the value of its equity increase?
a.350%
b.3.5%
c.30%
d.3%
e.300%
5. A financial institution is insolvent when the book value of its assets is less than he book value of its liabilities. True or False? Explain.
6. Securitization eliminates credit and interest rate from the financial system. This is one of the great benefits of securitization. True or False? Explain.