According to the FCIC report, New Century Financial used the Federal Reserve dis
ID: 2716790 • Letter: A
Question
According to the FCIC report, New Century Financial used the Federal Reserve discount window to raise the capital it needed to finance the origination of mortgages. True or False why?
A financial institution is permitted to use leverage up to a maximum debt to equity ratio of 20. Currently the bank finances its $ 100 of assets with $10 of equity.
Managers can issue $5 of additional debt and use the proceeds to buy back $5 of equity without violating the debt/equity constraint of 20. True or false why?
In the 10-K filed by Bear Stearns and Company for the fiscal year ending November 30, 2007, management indicates that the firm’s reputation is important to its value. True or false
A financial institution is permitted to use leverage up to a maximum debt to equity ratio of 20. Currently the bank finances its $ 100 of assets with $10 of equity.
Managers will likely receive a margin call if asset value falls to 96. True or false
In the 10-K filed by Bear Stearns and Company for the fiscal year ending November 30, 2007, management indicates that the company’s cost of capital is lined to the long and short term credit ratings of the company. True or false
Explanation / Answer
According to the FCIC report, New Century Financial used the Federal Reserve discount window to raise the capital it needed to finance the origination of mortgages. True or False why?
Answer: True
A financial institution is permitted to use leverage up to a maximum debt to equity ratio of 20. Currently the bank finances its $ 100 of assets with $10 of equity.
Managers can issue $5 of additional debt and use the proceeds to buy back $5 of equity without violating the debt/equity constraint of 20. True or false why?
Answer: True
In the 10-K filed by Bear Stearns and Company for the fiscal year ending November 30, 2007, management indicates that the firm’s reputation is important to its value. True or false
Answer: False
A financial institution is permitted to use leverage up to a maximum debt to equity ratio of 20. Currently the bank finances its $ 100 of assets with $10 of equity.
Managers will likely receive a margin call if asset value falls to 96. True or false
Answer: True
In the 10-K filed by Bear Stearns and Company for the fiscal year ending November 30, 2007, management indicates that the company’s cost of capital is lined to the long and short term credit ratings of the company. True or false
Answer: True
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