Question 1

The yield to maturity for an ordinary bond corresponds to which of the following, as related to a mortgage-backed security?

Accepted Answer

A) payment yield 
B) assumed yield 
C) current yield 
D) cash flow yield 
E) amortized yield 
A) payment yield 
B) assumed yield 
C) current yield 
D) cash flow yield 
E) amortized yield

Question 2

Securities that are created when a mortgage pool is divided into a number of tranches are referred to as ________.

Accepted Answer

A) split strips 
B) divided CMOs 
C) sequential CMOs 
D) indexed mortgage splits 
E) tranche pools 
A) split strips 
B) divided CMOs 
C) sequential CMOs 
D) indexed mortgage splits 
E) tranche pools

Question 3

You are assuming a 30-year mortgage for $280,000 at 4.5% interest. How much would you save in interest if you financed this loan at 4% for 20 years?

Accepted Answer

A) $101,603 
B) $102,504 
C) $103,520 
D) $104,116 
E) $105,686 
A) $101,603 
B) $102,504 
C) $103,520 
D) $104,116 
E) $105,686

Question 4

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

Accepted Answer

A) PAC collar 
B) PAC range 
C) PAC space 
D) PAC cup 
E) PAC field 
A) PAC collar 
B) PAC range 
C) PAC space 
D) PAC cup 
E) PAC field

Question 5

PAC bondholders receive payments of principal based on which one of the following?

Accepted Answer

A) an amortization schedule 
B) PAC collar's lower PSA prepayment schedule 
C) PAC collar's upper PSA prepayment schedule 
D) receipt of all principal collected on the underlying pool of mortgages until the bond is paid in full 
E) zero principal from the underlying pool of mortgages until after the PAC companion bonds have been paid in full 
A) an amortization schedule 
B) PAC collar's lower PSA prepayment schedule 
C) PAC collar's upper PSA prepayment schedule 
D) receipt of all principal collected on the underlying pool of mortgages until the bond is paid in full 
E) zero principal from the underlying pool of mortgages until after the PAC companion bonds have been paid in full

Question 6

Keith is taking out a $200,000, 30-year mortgage at 4.25% interest. Keith wishes to know how much principal he will have paid down by the time he has made half of the monthly payments on his loan.

Accepted Answer

A) $68,845 
B) $69,132 
C) $69,213 
D) $70,453 
E) $100,000 
A) $68,845 
B) $69,132 
C) $69,213 
D) $70,453 
E) $100,000

Question 7

Which one of the following is the preferred method of evaluating interest rate risk on mortgage bonds?

Accepted Answer

A) PSA rating 
B) modified duration 
C) Macaulay duration 
D) effective duration 
E) postponed duration 
A) PSA rating 
B) modified duration 
C) Macaulay duration 
D) effective duration 
E) postponed duration

Question 8

Which one of the following is the key function of GNMA?

Accepted Answer

A) providing direct financing for first-time home buyers only 
B) directly refinancing existing home mortgages 
C) providing mortgage funds to military personnel only 
D) providing direct financing to first-time home buyers, military personnel, and farmers 
E) sponsoring the repackaging of mortgages into mortgage-backed securities pools 
A) providing direct financing for first-time home buyers only 
B) directly refinancing existing home mortgages 
C) providing mortgage funds to military personnel only 
D) providing direct financing to first-time home buyers, military personnel, and farmers 
E) sponsoring the repackaging of mortgages into mortgage-backed securities pools

Question 9

Which one of the following is the prepayment rate for a mortgage pool which is dependent upon the age of the mortgages comprising the pool?

Accepted Answer

A) unseasoned prepayment rate 
B) average life rate 
C) aged prepayment rate 
D) conditional prepayment rate 
E) amortized prepayment rate 
A) unseasoned prepayment rate 
B) average life rate 
C) aged prepayment rate 
D) conditional prepayment rate 
E) amortized prepayment rate

Question 10

The CPR for an unseasoned 100 PSA mortgage is 4.0%. What is the single monthly mortality?

Accepted Answer

A) .3396% 
B) .3535% 
C) .3652% 
D) .3830% 
E) .3986% 
A) .3396% 
B) .3535% 
C) .3652% 
D) .3830% 
E) .3986%

Question 11

A mortgage pool is divided into a basic sequential CMO structure that includes A-, B-, C-, and Z-tranches. Which tranche will initially be paid mortgage principal?

Accepted Answer

A) A-tranche 
B) B-tranche 
C) C-tranche 
D) Z-tranche 
E) all tranches on a pro-rata basis 
A) A-tranche 
B) B-tranche 
C) C-tranche 
D) Z-tranche 
E) all tranches on a pro-rata basis

Question 12

Which of the following affect the value of a PO strip based on a GNMA bond?
I. changes in the PSA schedule
II. prepayment rates
III. time value of money
IV. changes in the default rates for the underlying mortgages

Accepted Answer

A) I and II only 
B) II and III only 
C) I, II, and III only 
D) I, II, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) II and III only 
C) I, II, and III only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 13

You want to borrow $200,000 at 4.5% interest. If you assume a 10-year loan, the monthly payment will be ________ as compared to ________ if you assume a 20-year loan.

Accepted Answer

A) $1,237.50; $1,103.88 
B) $2,072.77; $1,237.50 
C) $2,072.77; $1,265.30 
D) $2,198.18; $1,265.30 
E) $2,298.16; $1,433.50 
A) $1,237.50; $1,103.88 
B) $2,072.77; $1,237.50 
C) $2,072.77; $1,265.30 
D) $2,198.18; $1,265.30 
E) $2,298.16; $1,433.50

Question 14

You have a 30-year, $160,000 mortgage. The interest rate is 4.75%. If you decide to pay $1,000 as your first payment, by how much will you prepay your mortgage?

Accepted Answer

A) $165.36 
B) $170.39 
C) $175.03 
D) $179.00 
E) $834.64 
A) $165.36 
B) $170.39 
C) $175.03 
D) $179.00 
E) $834.64

Question 15

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Accepted Answer

A) collateral provision 
B) put provision 
C) call feature 
D) conversion feature 
E) protective covenants provision 
A) collateral provision 
B) put provision 
C) call feature 
D) conversion feature 
E) protective covenants provision

Question 16

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will ________ and the amount of principal you pay each month will ________.

Accepted Answer

A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase 
E) remain constant; remain constant 
A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase 
E) remain constant; remain constant

The yield to maturity for an ordinary bond corresponds to which of the following, as related to a mortgage-backed security?

Securities that are created when a mortgage pool is divided into a number of tranches are referred to as ________.

You are assuming a 30-year mortgage for $280,000 at 4.5% interest. How much would you save in interest if you financed this loan at 4% for 20 years?

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

PAC bondholders receive payments of principal based on which one of the following?

Keith is taking out a $200,000, 30-year mortgage at 4.25% interest. Keith wishes to know how much principal he will have paid down by the time he has made half of the monthly payments on his loan.

Which one of the following is the preferred method of evaluating interest rate risk on mortgage bonds?

Which one of the following is the key function of GNMA?

Which one of the following is the prepayment rate for a mortgage pool which is dependent upon the age of the mortgages comprising the pool?

The CPR for an unseasoned 100 PSA mortgage is 4.0%. What is the single monthly mortality?

A mortgage pool is divided into a basic sequential CMO structure that includes A-, B-, C-, and Z-tranches. Which tranche will initially be paid mortgage principal?

Which of the following affect the value of a PO strip based on a GNMA bond? I. changes in the PSA schedule II. prepayment rates III. time value of money IV. changes in the default rates for the underlying mortgages

You want to borrow $200,000 at 4.5% interest. If you assume a 10-year loan, the monthly payment will be as compared to if you assume a 20-year loan.

You have a 30-year, $160,000 mortgage. The interest rate is 4.75%. If you decide to pay $1,000 as your first payment, by how much will you prepay your mortgage?

A mortgage prepayment is similar to which one of the following features of a corporate bond?

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will and the amount of principal you pay each month will .

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Filters

Exam 21: Mortgage-Backed Securities

The yield to maturity for an ordinary bond corresponds to which of the following, as related to a mortgage-backed security?

Securities that are created when a mortgage pool is divided into a number of tranches are referred to as ________.

You are assuming a 30-year mortgage for $280,000 at 4.5% interest. How much would you save in interest if you financed this loan at 4% for 20 years?

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

PAC bondholders receive payments of principal based on which one of the following?

Keith is taking out a $200,000, 30-year mortgage at 4.25% interest. Keith wishes to know how much principal he will have paid down by the time he has made half of the monthly payments on his loan.

Which one of the following is the preferred method of evaluating interest rate risk on mortgage bonds?

Which one of the following is the key function of GNMA?

Which one of the following is the prepayment rate for a mortgage pool which is dependent upon the age of the mortgages comprising the pool?

The CPR for an unseasoned 100 PSA mortgage is 4.0%. What is the single monthly mortality?

A mortgage pool is divided into a basic sequential CMO structure that includes A-, B-, C-, and Z-tranches. Which tranche will initially be paid mortgage principal?

Which of the following affect the value of a PO strip based on a GNMA bond? I. changes in the PSA schedule II. prepayment rates III. time value of money IV. changes in the default rates for the underlying mortgages

You want to borrow $200,000 at 4.5% interest. If you assume a 10-year loan, the monthly payment will be ________ as compared to ________ if you assume a 20-year loan.

You have a 30-year, $160,000 mortgage. The interest rate is 4.75%. If you decide to pay $1,000 as your first payment, by how much will you prepay your mortgage?

A mortgage prepayment is similar to which one of the following features of a corporate bond?

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will ________ and the amount of principal you pay each month will ________.

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Filters

You want to borrow $200,000 at 4.5% interest. If you assume a 10-year loan, the monthly payment will be as compared to if you assume a 20-year loan.

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will and the amount of principal you pay each month will .