Free Printable FIN2024_FIN3054_Chapter 10

1.

What is base lending rate?

a)

An interest rate set by the banks after plus with credit risk

b)

An interest rate set by the central bank or federal reserve

c)

It's primary lending rate

d)

It's base rate plus credit risk

2.

Interest rate charged by the bank is base lending rate (BR) + phi.

What does phi represent? Choose more than one answer.

a)

credit risk premium

b)

risk margin

c)

premium margin

d)

fee

3.

Given base lending rate is 8% and phi is 2%. What is the interest rate charged by the bank?

a)

9%

b)

6%

c)

10%

d)

11%

4.

Given base lending rate is 8% and phi is 2%. What is the simple promised interest return on the loan?

a)

8%

b)

10%

c)

9%

d)

11%

5.

Suppose the interest rate charge is 10%. The loan origination fee is 0.125%. The compensating balance requirement is 8%. The reserve requirement is 10%. What is the k, return on the loan?

a)

15%

b)

12%

c)

11%

d)

9%

6.

Suppose the interest rate charge is 10%. The loan origination fee is 0.125%. The compensating balance requirement is 8%. The reserve requirement is 10%. What is the contractually promised gross return on the loan?

a)

15%

b)

11%

c)

9%

d)

13%

7.

What is the formula for k, the return on the loan or contractually promised gross return on the loan?

a)

[of+(BR+phi)]/(1-b)

b)

[of+(BR+phi)]/(1-b*RR)

c)

[of+(BR+phi)]/(1-b*(1-RR))

d)

[of+(BR+phi)]/(1-b/RR)

8.

You are given the return on the loan k is 12.45%. What is the expected return on the loan if probability of default is 5%?

a)

2.8%

b)

9.8%

c)

8.8%

d)

6.8%

9.

Suppose CIMB default model is: PDi=0.5*(D/E)-0.0525*(S/A). A customer walks in with D/E=0.3 and S/A=2. What is the probability of default for this customer?

a)

4%

b)

4.5%

c)

5%

d)

5.5%

10.

Suppose RHB credit scoring model is: PDi=0.65*(D/E)-0.03*(PM). CIMB credit scoring model is: PDi=0.5*(D/E)-0.0525*(S/A). A customer walks in and tells you his D/E=0.3, PM=1.5; and S/A=0.2. Which bank will charge higher interest rate?

a)

Neither

b)

RHB

c)

CIMB

d)

BOTH

11.

The formula for logit model is:

a)

F(X)=1/(1/e^-(X))

b)

F(X)=1/(1+e^-(X))

c)

F(X)=1/(1+e^(X))

d)

F(X)=1/(1-e^-(X))

12.

Suppose the PDi = 0.045. What is the probability of default in logit model?

a)

0.32

b)

0.51

c)

0.44

d)

0.65

13.

What is the Altman credit scoring model?

a)

Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0(X5)

b)

Z = 2.1(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0(X5)

c)

Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4)

d)

Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 4.6(X4) + 1.0(X5)

14.

Given Altman Credit Scoring: Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0(X5)

and X1=0.2; X2=0; X3=-0.2; X4=0.1; X5=2. What is the Z score

a)

1.77

b)

1.64

c)

1.54

d)

1.85

15.

If the Z score is less than 1.81, you are in:

a)

indeterminant

b)

low default region

c)

high default region

d)

ok

16.

Who set the base lending rate, BLR?

a)

CIMB

b)

Maybank

c)

Central Bank, BNM

d)

Prime Minister

17.

What are the four major type of loans made by the commercial banks?

a)

commercial and industrial loans

b)

commercial paper loans

c)

individual consumer loans

d)

other loans

e)

real estate loans

18.

What is a syndicated loan?

a)

Loan structured by a group of ministers

b)

Loan structured by a single lender

c)

Loan structured by a group of financial institutions

d)

Loan structured by two lenders

19.

What is a secured loan?

a)

Loans issued and used LIBOR rate

b)

Loan issued by banks

c)

Loan that has no collateral

d)

Loan that has collateral

20.

What is unsecured loan?

a)

Loan that is based on Libor rate

b)

Loan that has no collateral

c)

Loan that has collateral

d)

Loan issued by banks

21.

What is the spot loan? Choose two answers.

a)

Loan made by the FI and the borrower takes down the loan on the spot

b)

Loan made by the FI and the borrower takes down the loan immediately

c)

Loan made by the FI and the borrower takes down the loan at any time the borrower wishes

22.

What is revolving loan?

a)

loans that have no collateral

b)

loans like a credit line or credit card

c)

loans that have maturity date

d)

loans that have collateral

23.

Why is credit card interest rate higher than personal loans interest rate? Two answers

a)

credit card is non-revolving loan

b)

Credit card is revolving loan

c)

credit card has no collateral

d)

credit card is of low risk

24.

What is a commercial paper?

a)

unsecured short term equity instrument issued by corporations

b)

unsecured short term debt instrument issued by corporations

c)

unsecured long term debt instrument issued by corporations

d)

secured short term debt instrument issued by corporations

25.

Which model that calculate the expected probability of default?

a)

Linear Discriminant Model

b)

Linear Probability Model

c)

Logit Model

d)

Contractually Promised Return on the Loan

26.

WHat are the weaknesses of Altman Z-Score? Choose 3

a)

Only two extreme cases default non default

b)

Reputation is not considered

c)

The weight is fixed

d)

Can be negative value

27.

The Bank of England used to set the interest rate called:

a)

London International-Bank Offered Rate

b)

London Inter-Bank Offered Rate

c)

London Intra-Bank Offered Rate

d)

London Interest-Bank Official Rate

28.

Will LIBOR still be used in the future?

a)

Yes

b)

No

29.

In the linear probability model, the coefficient is captured by:

a)

average

b)

variance

c)

correlation

d)

covariance

30.

During the Global Financial Crisis (2008/09), how many US banks failed?

a)

five major banks

b)

100+

c)

200+

d)

300+

31.

Bank DEF doesn't permit loss of 20% of its capital to construction sector. They estimate for every $1 loan, the default is 45 cents. The maximum loan that can be given out to this sector is:

a)

30.5

b)

37.4%

c)

44.44%

d)

49%

32.

Suppose that an FI holds two loans with the following characteristics:

Loan i X_i R_i σ_i σ_i² .

1 0.55 8% 8.55% 73.1025% ρ₁₂= 0.24

2 0.45 10 9.15 83.7225 σ₁₂= 18.7758

Calculate the return of the portfolio.

a)

8.90%

b)

10%

c)

11%

d)

12%

33.

Suppose that an FI holds two loans with the following characteristics:

Loan i X_i R_i σ_i σ_i² .

1 0.55 8% 8.55% 73.1025% ρ₁₂= 0.24

2 0.45 10 9.15 83.7225 σ₁₂= 18.7758

Calculate the risk of the portfolio.

a)

5.45

b)

6.95%

c)

8%

d)

9%

FIN2024_FIN3054_Chapter 10_Credit Risk

Total questions: 33

Worksheet time: 18mins

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