FINE 442 Study Guide - Midterm Guide: United States Treasury Security, Reserve Requirement, Corporate Bond
14 Apr 2015
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Solutions to midterm exam: multiple choice[10 marks-1 mark each] [2 marks] the pll account is forward looking; it is management"s estimate of the loans that will default in the upcoming period. The pll is used to reduce current earnings estimates so that interest income (accrual based) more accurately reflects the actual cash that is likely to be received. [1 mark] writing off loans are actual loans that defaulted. [1 mark] the reserve for loan losses provides a cushion against equity write-downs if loans default: [6 marks] 50,000 [1- . 0225] = 48875 (cid:222, [8 marks] *note thate : a, f and g are tied at 98. 1125. e. g. , a : [20000/20000 + 25000 + 12000] x 40 million = 14,035,000: [3 marks] Average price = 98. 13 x 5/75 + 98. 12 x 30/75 + 98. 125 x 40/175 = 98. 126 per par. Yield reported by boc = [(100-98. 126)/100] x 360/182 = 0. 037068 or 3. 7068: a.
