ECON 15A Lecture 8: Homework 1 example

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greycrow769

23 Mar 2016

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The z score has more spread out value than, z score for wage(standardized) unstandardized, similarities both skewed to the right. The skew and kurtosis are the same: differences they have different means and standard deviations. The unstandardized has a greater maximum and the standardized has a lower minimum: z score for age(standardized) unstandardized, similarities both have no true skew. The mean is smaller than the median in both. The skew and kurtosis are the same in both: differences they have different standard deviations and means. The max in the unstandardized is greater than the standardized. The min is greater for the unstandardized: z score for education (standardized) unstandardized, similarities both have no true skew, but appear to be left skewed. The skew and kurtosis are the same in both: differences the mean is smaller than the median in standardized and the reverse for unstandardized.

Related Questions

Moral hazard is not eliminated in debt financing because

A) borrowers have an incentive to assume greater risk than is in the interest of the lender.

B) firms with a great deal of debt often go bankrupt.

C) principal-agent problems are greater with debt financing than with equity financing.

D) the use of restrictive covenants tends to increase moral hazard.

Why are corporations more likely to raise funds externally by debt instead of equity?

A) moral hazard is less of a problem with debt contracts

B) transactions costs tend to be higher in the stock market than bond market

C) to avoid paying dividends

D) interest rates tend to be lower than dividend rates

Which of the following is NOT a bank liability?

A) checkable deposits

B) CDs

C) mortgage loans

D) borrowings from the Federal Reserve

Banks use repurchase agreements to

A) ensure that payments on consumer loans are made on time.

B) borrow funds from business firms or other banks.

C) guard against price fluctuations on long-term bonds.

D) ensure that they always have enough funds on hand to meet their federal tax liabilities.

If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity?

A) 0.2%

B) 2.1%

C) 5%

D) 20%

Which of the following statements about checking deposits is true?

A) It is a liability for both households and banks.

B) It is an asset for both households and banks.

C) It is an asset for households but a liability for a bank.

D) It is a liability for households but an asset for a bank.

brownherring865

Leverage

Consider the following balance sheets of two banks. These two banks have equal amounts of assets but are leveraged differently. Assume that there is no regulatory capital requirement.

Balance Sheet of Arch Bank
Assets		Liabilities and Net Worth
Outstanding Loans	$100,000	Deposits (Liabilities)	$80,000
		Capital (Net worth)	20,000
Total	$100,000	Total	$100,000

Balance Sheet of Medes Bank
Assets		Liabilities and Net Worth
Outstanding Loans	$100,000	Deposits (Liabilities)	$95,000
		Capital (Net worth)	5,000
Total	$100,000	Total	$100,000

a. Which bank has a lower leverage ratio?

b. Suppose both banks' assets increase by 10% to $110,000. Assume that the liabilities of both banks remain the same. Arch Bank's capital increases by _____% and Medes Bank's capital increases by _______%. Therefore, if the value of assets is rising and liabilities do not change, a higher leverage ratio results in a _____ percentage increase in capital.

c. Now suppose all the items on the balance sheets of both banks return to their initial values. Suddenly, the banks realize that loans they made are riskier than they thought, and the total value of their assets declines by 5% to $95,000. Again, assume that the liabilities of both banks remain the same. Arch Bank's capital decreases by __________%, and Medes Bank's capital decreases by ______%. Therefore, if the value of assets is falling, a higher leverage ratio means a ________ percentage decrease in capital.

d. Under this second scenario, which bank is closer to insolvency?

apricotserval510

True	False	Moral hazard exists when a person does not have high moral standards
True	False	Hope scholarship was aimed to make colleges more affordable
True	False	Companies who offer rebates for safe driving are trying to deal with the moral hazard problem
True	False	Past health history is an example of a hidden action
True	False	The market for lemons explains the adverse selection problem
True	False	An increase in wages increases productivity
True	False	Going to college increases your human capital
True	False	Political stability is an important factor in a country's standard of living
True	False	Immigration decreases productivity
True	False	Japan has a limited amount of natural resources
True	False	A future contract is beneficial to the farmer when prices of the commodity rise
True	False	Stocks are usually safer than bonds and have higher return rates
True	False	Value of bond increases as interest rates increase
True	False	The market efficiency hypothesis says that all stocks are fairly valued
True	False	One of the determinants of the stock price is the future profitability of a company
True	False	The majority voting rule is always better than the plurality voting rule
True	False	Politicians always agree with each other because they want to implement the same policies
True	False	The median voter decides the outcome of the election in case of a tie
True	False	Lobbyists promote policies supported by the majority of voters
True	False	The individual vote is most likely not going to determine the outcome of a major election

lavenderclam202

ECON 15A Lecture 8: Homework 1 example

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