FIN 461 TEST 1 QUESTIONS WITH
100% CORRECT ANSWERS
A financial institution's bad-debt reserve, as reported on its balance sheet, is called:
a. unearned income or discount.
b. allowance for possible loan losses.
c. intangible assets.
d. customer liability on acceptances.
e. None of the options are correct. - Answer- b. allowance for possible loan losses.
Nonperforming loans are credits on which any scheduled loan repayments and interest
payments are past due for more than:
a. 30 days.
b. 60 days.
c. 90 days.
d. 180 days.
e. None of the options are correct. - Answer- c. 90 days.
Banks depend heavily upon borrowed funds supplied by customers with little owners'
capital invested. This means that banks make heavy use of:
a. financial leverage.
b. capital restructuring.
c. operating leverage.
d. margin borrowing.
e. None of the options are correct. - Answer- a. financial leverage.
The common banking practice of selling those investment securities that have
appreciated in order to reap a capital gain and holding onto those securities whose
prices have declined is known as:
a. gains trading.
b. performance banking.
c. loss control trading.
d. selective portfolio management.
e. None of the options are correct - Answer- a. gains trading.
A bank's temporary lending of excess reserves to other banks is labeled on the balance
sheet as:
a. fed funds purchased.
b. fed funds sold.
c. money market deposits.
,d. securities purchased for resale.
e. None of the options are correct - Answer- b. fed funds sold.
A bank which starts with ALL of $1.48 million at the beginning of the year, charges off
worthless loans of
$0.94 million during the year, recovers $0.12 million on loans previously charged off and
charges current income for a $1.02 million provision for loan losses, will have an ALL at
the end of the year of:
a. $0.66 million.
b. $3.32 million.
c. $1.68 million.
d. $1.28 million.
e. The same amount as at the beginning of the year. - Answer- c. $1.68 million.
A bank has total interest income of $67 million and total noninterest income of $14
million. This bank has total interest expenses of $35 million and total noninterest
expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and
its taxes are $5. What is this bank's net income?
a. $7
b. ($14)
c. $18
d. $32
e. None of the options are correct. - Answer- a. $7
See the information about the Miller State Bank
Given this information, what is the value of this firm's net loans?
a. $250
b. $350
c. $500
d. $50
e. $150 - Answer- a. $250
37. YSee the information about the Miller State Bank
Given this information, what is the value of this firm's depreciation?
a. $250
b. $30
c. $70
d. $40
e. $110 - Answer- b. $30
38. See the information about the Miller State Bank
Given this information, what is the value of this firm's total liabilities?
a. $390
b. $60
c. $450
d. $500
, e. $50 - Answer- c. $450
39. See the information about the Miller State Bank
Given this information, what the value of this firm's undivided profits?
a. $50
b. $5
c. $10
d. $40
e. $450 - Answer- d. $40
40. See the information about the Miller State Bank
Given this information, what is the value of this firm's total liabilities plus equity?
a. $250
b. $450
c. $150
d. $50
e. $500 - Answer- e. $500
41. The ratio of a bank's interest income from its loans and security investments less
interest expenses on debt
issued, divided by total earning assets measures a bank's:
a. net operating margin.
b. net return before special transactions.
c. net interest margin.
d. return on assets.
e. None of the options is correct - Answer- c. net interest margin.
42. ROE for a bank is calculated by:
a. dividing net after-tax income by total equity capital.
b. dividing total operating revenue less operating expenses by total assets.
c. dividing net pre-tax income by total equity capital.
d. noninterest income less noninterest expenses divided by total earning assets.
e. None of the options is correct. - Answer- a. dividing net after-tax income by total
equity capital.
43. A bank's ROE equals its ROA times its:
a. net profit margin.
b. total assets divided by total equity capital.
c. total operating revenues divided by total assets.
d. ratio of net after-tax income to total operating revenues.
e. None of the options is correct. - Answer- b. total assets divided by total equity capital.
44. The earnings spread for a bank is equal to:
a. total interest income divided by total earning assets less total interest expense
divided by
total interest-bearing bank liabilities.
100% CORRECT ANSWERS
A financial institution's bad-debt reserve, as reported on its balance sheet, is called:
a. unearned income or discount.
b. allowance for possible loan losses.
c. intangible assets.
d. customer liability on acceptances.
e. None of the options are correct. - Answer- b. allowance for possible loan losses.
Nonperforming loans are credits on which any scheduled loan repayments and interest
payments are past due for more than:
a. 30 days.
b. 60 days.
c. 90 days.
d. 180 days.
e. None of the options are correct. - Answer- c. 90 days.
Banks depend heavily upon borrowed funds supplied by customers with little owners'
capital invested. This means that banks make heavy use of:
a. financial leverage.
b. capital restructuring.
c. operating leverage.
d. margin borrowing.
e. None of the options are correct. - Answer- a. financial leverage.
The common banking practice of selling those investment securities that have
appreciated in order to reap a capital gain and holding onto those securities whose
prices have declined is known as:
a. gains trading.
b. performance banking.
c. loss control trading.
d. selective portfolio management.
e. None of the options are correct - Answer- a. gains trading.
A bank's temporary lending of excess reserves to other banks is labeled on the balance
sheet as:
a. fed funds purchased.
b. fed funds sold.
c. money market deposits.
,d. securities purchased for resale.
e. None of the options are correct - Answer- b. fed funds sold.
A bank which starts with ALL of $1.48 million at the beginning of the year, charges off
worthless loans of
$0.94 million during the year, recovers $0.12 million on loans previously charged off and
charges current income for a $1.02 million provision for loan losses, will have an ALL at
the end of the year of:
a. $0.66 million.
b. $3.32 million.
c. $1.68 million.
d. $1.28 million.
e. The same amount as at the beginning of the year. - Answer- c. $1.68 million.
A bank has total interest income of $67 million and total noninterest income of $14
million. This bank has total interest expenses of $35 million and total noninterest
expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and
its taxes are $5. What is this bank's net income?
a. $7
b. ($14)
c. $18
d. $32
e. None of the options are correct. - Answer- a. $7
See the information about the Miller State Bank
Given this information, what is the value of this firm's net loans?
a. $250
b. $350
c. $500
d. $50
e. $150 - Answer- a. $250
37. YSee the information about the Miller State Bank
Given this information, what is the value of this firm's depreciation?
a. $250
b. $30
c. $70
d. $40
e. $110 - Answer- b. $30
38. See the information about the Miller State Bank
Given this information, what is the value of this firm's total liabilities?
a. $390
b. $60
c. $450
d. $500
, e. $50 - Answer- c. $450
39. See the information about the Miller State Bank
Given this information, what the value of this firm's undivided profits?
a. $50
b. $5
c. $10
d. $40
e. $450 - Answer- d. $40
40. See the information about the Miller State Bank
Given this information, what is the value of this firm's total liabilities plus equity?
a. $250
b. $450
c. $150
d. $50
e. $500 - Answer- e. $500
41. The ratio of a bank's interest income from its loans and security investments less
interest expenses on debt
issued, divided by total earning assets measures a bank's:
a. net operating margin.
b. net return before special transactions.
c. net interest margin.
d. return on assets.
e. None of the options is correct - Answer- c. net interest margin.
42. ROE for a bank is calculated by:
a. dividing net after-tax income by total equity capital.
b. dividing total operating revenue less operating expenses by total assets.
c. dividing net pre-tax income by total equity capital.
d. noninterest income less noninterest expenses divided by total earning assets.
e. None of the options is correct. - Answer- a. dividing net after-tax income by total
equity capital.
43. A bank's ROE equals its ROA times its:
a. net profit margin.
b. total assets divided by total equity capital.
c. total operating revenues divided by total assets.
d. ratio of net after-tax income to total operating revenues.
e. None of the options is correct. - Answer- b. total assets divided by total equity capital.
44. The earnings spread for a bank is equal to:
a. total interest income divided by total earning assets less total interest expense
divided by
total interest-bearing bank liabilities.
