Goldman Sachs operated with 40 to 1 leverage

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 Quiz Below multiple choice


Question 1

"Goldman Sachs operated with 40 to 1 leverage."

This statement is consistent with which of the following:

Select one:

a. 

Goldman Sachs borrows 40 dollars for each dollar of capital.

b. 

Goldman Sachs must borrow 97.5% of total asset value.

c. 

Capital constitutes 2.5% of assets.

d. 

2.5% loss in value would wipe out shareholder value.

e. 

All of the above.

Question 2

This particular bond is considered to have no default risk.

Select one:

a. 

AAA rated corporate bonds

b. 

sovereign wealth bonds

c. 

zero risk bonds

d. 

US Treasury bonds

Question 3



The figure above shows the interest rates (sometimes called yields) for two types of bonds: US 10-year Treasury bond and a risky corporate bond. The gap (i.e., vertical distance) between the US 10-year Treasury bond (red) and risky corporate bond (blue) lines is called:

Select one:

a. 

risk premium

b. 

yield gap

c. 

premium spread

d. 

default zone

Question 4

An investor has $50,000 in cash to put a $5,000 down payment on 10 different homes valued at $50,000 each and will finance the rest of the investment. Soon after buying the homes she sold all 10 homes for $60,000 each and  earned a profit of $100,000 - an astounding 100% return on investment. This scenario is an example of:

Select one:

a. 

risk-return

b. 

interest rate spread

c. 

financial liquidity

d. 

leverage

Question 5




The table above shows the balance sheet of Big-But-Simple Bank (BBSB). This bank has taken $60 billion of shareholders' equity and leveraged it Answer56460 to  Answer123.

 

 

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Use figure 2.4 to answer questions 6-8

Question 6

What was the estimated bank losses, on average, for every million dollars in outstanding mortgage balances during 1996Q1? Enter your answer below. Example: If your answer is $2,500 then enter 2500 (no dollar sign, commas, or decimals).

Answer:

Question 7

What was the estimated bank losses, on average, for every million dollars in outstanding mortgage balances during 2001Q1? Enter your answer below. Example: If your answer is $2,500 then enter 2500 (no dollar sign, commas, or decimals).

Answer:

Question 8

Which of the following statement best describes the data in figure 2.4:

Select one:

a. 

With the exception of a few quarters losses due to defaults were negligible.

b. 

With the exception of a few quarters losses due to defaults were substantial.

c. 

Mortgage delinquencies and defaults were relatively high.

d. 

There was significant volatility in the mortgage industry.

Question 9

MBS, CDOs, and CDSs are all examples of:

Select one:

a. 

bonds

b. 

stocks

c. 

derivatives

d. 

commercial paper

Question 10

A bond can be described as a(n):

Select one:

a. 

stock

b. 

bank loan

c. 

credit restriction

d. 

fixed-income security

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