Question 1

Deregulation appears to have changed the determinants of bank stock prices.

Accepted Answer

A) True 
 B)False

Question 2

Price-earnings ratios of large U.S. banks during the economic recession in 2002:

Accepted Answer

A)   increased
B)   decreased
C)   did not change for the most partD) A) and B)
E) A) and C)

Question 3

Fraser and Kolari found that the Return of Assets was substantially higher for high premium merging small banks.

Accepted Answer

A) True 
 B)False

Question 4

The value of a share of stock is determined fundamentally by the cash benefits that the buyer expects to receive from the asset.

Accepted Answer

A) True 
 B)False

Question 5

Cornett and Tehranian examined the post-acquisition performances of large bank mergers and found:

Accepted Answer

A)   the merged banks showed evidence of superior cash flow performance
B)   the merged banks improved their ability to attract loans and deposits
C)   employee productivity declined at the merged banks
D)   a and bE) A) and D)
F) C) and D)

Question 6

The rate of return on a stock is the sum of the dividend yield and the price change.

Accepted Answer

A) True 
 B)False

Question 7

Synergy as a motive in bank mergers and acquisitions is related to:

Accepted Answer

A)   management expertise
B)   agency costs
C)   cost efficiency
D)   a and c
E)   a, b, and cF) All of the above
G) C) and E)

Question 8

According to a study by Milbourn, Boot, and Thakor, a theoretical explanation for megamergers in the banking industry is to:

Accepted Answer

A)   increase synergy
B)   increase diversification
C)   increase market power
D)   decrease competitive uncertaintyE) A) and B)
F) C) and D)

Question 9

In Fraser and Kolari's study of the price-book ratio for smaller banks involved in mergers, the author's find:

Accepted Answer

A)   high profit banks commanded higher merger premiums
B)   high premium banks had a higher fraction of their assets financed with demand deposits
C)   high premium small banks were located in markets experiencing greater population growth
D)   all of the aboveE) A) and D)
F) A) and C)

Question 10

What usually happens to the price of the buyer's (bidder's)  stock in a bank merger?

Accepted Answer

A)   it goes up slightly
B)   it declines
C)   remains unchanged
D)   there is no predictable patternE) None of the above
F) A) and C)

Question 11

Barth, Beaver, and Wolfson, in their study of the influence of operating earnings and securities gains and losses, found that:

Accepted Answer

A)   banks with higher operating earnings had higher stock prices
B)   banks with higher securities gains had higher stock prices
C)   banks with securities gains had lower stock prices
D)   a and cE) A) and D)
F) A) and B)

Question 12

According to Modigliani and Cohn, high inflation tends to cause equities to be:

Accepted Answer

A)   overvalued
B)   undervalued
C)   appropriately valuedD) All of the above
E) B) and C)

Question 13

If the market price of a bank's stock is $20, it pays no cash dividend, it pays a 5% stock dividend, and its earnings are negative, what is its price-earnings ratio?

Accepted Answer

A)   4
B)   Infinite
C)   Not meaningful
D)   5E) A) and B)
F) A) and C)

Question 14

Hughs, Lang, Mester, and Moon found that banks involved in mergers and acquisitions across state lines benefited in terms of:

Accepted Answer

A)   diversification benefits
B)   greater revenues
C)   lower operating risk
D)   a and c
E)   a, b, and cF) B) and D)
G) C) and E)

Question 15

The price-earnings ratio summarizes the outlook for the future of the bank.

Accepted Answer

A) True 
 B)False

Question 16

The price earnings ratio may be obtained by dividing the total market value of the stock of the bank by the total dollar value of its earnings.

Accepted Answer

A) True 
 B)False

Question 17

Visser and Wu in their study of the determinants of bank price-earnings ratios before and after deregulation found:

Accepted Answer

A)   before DIDMCA, the growth rate of deposits, the growth rate of earnings, and the ratio of capital to assets were positively associated with the price-earnings ratio
B)   after DIDMCA, the divided payout ratio became more significant while the past earnings growth rate remained highly important
C)   after DIDMCA, growth became less important
D)   all of the above.E) A) and B)
F) All of the above

Question 18

Target banks involved in mergers seldom experience stock price increases of over 10 percent.

Accepted Answer

A) True 
 B)False

Question 19

The price-earnings ratio is the conventional way to express the sales price of a target bank in a merger or acquisition deal.

Accepted Answer

A) True 
 B)False

Question 20

A dollar increase in operating earnings appears to have the same impact on stock price as a dollar increase in capital gains.

Accepted Answer

A) True 
 B)False

Exam 4: Bank Valuation

According to Modigliani and Cohn, high inflation tends to cause equities to be:

Correct AnswerverifiedShow Answer

Fraser and Kolari found that the Return of Assets was substantially higher for high premium merging small banks.

Correct AnswerverifiedShow Answer

Synergy as a motive in bank mergers and acquisitions is related to:

Correct AnswerverifiedShow Answer

Cornett and Tehranian examined the post-acquisition performances of large bank mergers and found:

Correct AnswerverifiedShow Answer

Hughs, Lang, Mester, and Moon found that banks involved in mergers and acquisitions across state lines benefited in terms of:

Correct AnswerverifiedShow Answer

Deregulation appears to have changed the determinants of bank stock prices.

Correct AnswerverifiedShow Answer

In Fraser and Kolari's study of the price-book ratio for smaller banks involved in mergers, the author's find:

Correct AnswerverifiedShow Answer

Price-earnings ratios of large U.S. banks during the economic recession in 2002:

Correct AnswerverifiedShow Answer

Visser and Wu in their study of the determinants of bank price-earnings ratios before and after deregulation found:

Correct AnswerverifiedShow Answer

The price-earnings ratio summarizes the outlook for the future of the bank.

Correct AnswerverifiedShow Answer

What usually happens to the price of the buyer's (bidder's) stock in a bank merger?

Correct AnswerverifiedShow Answer

The value of a share of stock is determined fundamentally by the cash benefits that the buyer expects to receive from the asset.

Correct AnswerverifiedShow Answer

The price earnings ratio may be obtained by dividing the total market value of the stock of the bank by the total dollar value of its earnings.

Correct AnswerverifiedShow Answer

A dollar increase in operating earnings appears to have the same impact on stock price as a dollar increase in capital gains.

Correct AnswerverifiedShow Answer

Target banks involved in mergers seldom experience stock price increases of over 10 percent.

Correct AnswerverifiedShow Answer

If the market price of a bank's stock is $20, it pays no cash dividend, it pays a 5% stock dividend, and its earnings are negative, what is its price-earnings ratio?

Correct AnswerverifiedShow Answer

Barth, Beaver, and Wolfson, in their study of the influence of operating earnings and securities gains and losses, found that:

Correct AnswerverifiedShow Answer

The rate of return on a stock is the sum of the dividend yield and the price change.

Correct AnswerverifiedShow Answer

According to a study by Milbourn, Boot, and Thakor, a theoretical explanation for megamergers in the banking industry is to:

Correct AnswerverifiedShow Answer

The price-earnings ratio is the conventional way to express the sales price of a target bank in a merger or acquisition deal.

Correct AnswerverifiedShow Answer

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