24-57 an FI Has Purchased an Agency Security That Is

question 60

Multiple Choice

24-57 An FI has purchased an agency security that is an inverse floater at 9 percent minus LIBOR.Which of the following characteristics reflect this type of asset?

• A)If LIBOR is 4 percent,the asset will pay 5 percent to the investor.
• B)As LIBOR increases,the investor will receive a lower return on the security.
• C)The agency issuing this security may convert it into a LIBOR liability by entering into a swap agreement.
• D)If the FI funded the asset at LIBOR,and LIBOR reaches 10 percent,the FI will have a negative 10 percent spread on the asset.
• E)All of the above.

Distinguish between the book value and market value methods of accounting for convertible bonds and their impact on financial statements.

Recognize the significance and accounting treatment of the issuance of bonds with detachable stock warrants.

Analyze the effects of using incorrect amortization methods on the carrying amount of bonds.

Assess the impact of bond conversion on stockholders' equity components.

---

Definitions:

Community Change

Describes the transformation of social, economic, and environmental conditions within a community to improve the wellbeing of its members.

News Release

An official statement issued to newspapers, television, radio, and other media outlets for the purpose of providing information or making an announcement.

Confrontation Strategies

Approaches designed to face and address problems, conflicts, or challenging situations directly.

Collaborate

Working together with one or more individuals to achieve a common goal, involving shared ideas, resources, and responsibilities.