Exam 15: Government Securities

A homeowner has been offered three alternative mortgage loans to finance the purchase of a $300,000 house. The interest rate on the first alternative is 8 percent for twenty-five years, and the loan requires a 20 percent down payment. The second mortgage loan is also for twenty-five years with an interest rate of 7 percent but requires a down payment of a third of the cost of the house. The third loan also requires a third down but is for 20 years at 6 percent. What are the annual mortgage payments required by each loan?

If interest rates increase, 1. the price of a Ginnie Mae falls 2. the price of a Ginnie Mae rises 3. the speed with which Ginnie Maes are retired increases 4. the speed with which Ginnie Maes are retired declines

If interest rates are expected to rise, a prudent strategy would be to sell treasury bills and buy treasury bonds.

If interest rates fall, the value of a Ginnie Mae bond should increase.

The prices of treasury bonds are insensitive to changes in interest rates.

What is the repayment schedule for the first three years of a $60,000 mortgage loan at 8 percent for twenty-five years? (Assume that payments are made annually.)

Interest earned on series EE bonds is exempt from federal income taxation.

Series EE bonds were initially designed to tap the funds of savers with modest sums to invest.

The federal government only issues marketable securities such as treasury bills.

Agencies of the federal government are not allowed to issue bonds.