Question 1

Home equity lines of credit (HELOCs)

Accepted Answer

A)  Are typically first mortgages 
B)  Are typically second mortgages 
C)  Are not collateralized 
D)  Are zero-coupon instruments 
A)  Are typically first mortgages 
B)  Are typically second mortgages 
C)  Are not collateralized 
D)  Are zero-coupon instruments B

Question 2

By paying points, a home buyer

Accepted Answer

A)  Is quoted a lower interest rate 
B)  Gets less cash from the lender at closing 
C)  Is able to improve the borrower's credit score 
D)  Both a and b 
A)  Is quoted a lower interest rate 
B)  Gets less cash from the lender at closing 
C)  Is able to improve the borrower's credit score 
D)  Both a and b D

Question 3

The average shape of the yield curve over long periods of time suggests that

Accepted Answer

A)  The average interest cost of an ARM will be lower than for an FRM 
B)  The average cost of an FRM will be lower than an ARM 
C)  The cost of an FRM and ARM will average out to be the same 
D)  Prepayments will be faster under an ARM 
A)  The average interest cost of an ARM will be lower than for an FRM 
B)  The average cost of an FRM will be lower than an ARM 
C)  The cost of an FRM and ARM will average out to be the same 
D)  Prepayments will be faster under an ARM A

Question 4

Residential and nonresidential construction

Accepted Answer

A)  Are not very sensitive to monetary policy actions affecting interest rates 
B)  Are among the most sensitive spending categories to interest rates 
C)  Are a small fraction of total investment 
D)  Do not depend much on credit markets 
A)  Are not very sensitive to monetary policy actions affecting interest rates 
B)  Are among the most sensitive spending categories to interest rates 
C)  Are a small fraction of total investment 
D)  Do not depend much on credit markets

Question 5

Negative convexity

Accepted Answer

A)  Relates to amortization schedules 
B)  Relates to the linkage between ARM rates and benchmarks 
C)  Relates to the tendency for mortgage prepayment rates to vary with the level of interest rates 
D)  Relates to the value of mortgage collateral and prepayments 
A)  Relates to amortization schedules 
B)  Relates to the linkage between ARM rates and benchmarks 
C)  Relates to the tendency for mortgage prepayment rates to vary with the level of interest rates 
D)  Relates to the value of mortgage collateral and prepayments

Question 6

Which of the following features act to lower mortgage rates?

Accepted Answer

A)  Escrow accounts 
B)  Monthly mortgage payments (as opposed to less frequent payments) 
C)  Qualifying for conforming mortgage status 
D)  All of the above 
A)  Escrow accounts 
B)  Monthly mortgage payments (as opposed to less frequent payments) 
C)  Qualifying for conforming mortgage status 
D)  All of the above

Question 7

The prepayment option in a home mortgage

Accepted Answer

A)  Raises the mortgage rate to the borrower 
B)  Does not affect the mortgage rate 
C)  Lowers the mortgage rate 
D)  Is no longer important 
A)  Raises the mortgage rate to the borrower 
B)  Does not affect the mortgage rate 
C)  Lowers the mortgage rate 
D)  Is no longer important

Question 8

Compared to home mortgages, commercial mortgages

Accepted Answer

A)  Have lower interest rates 
B)  Have longer maturities 
C)  Have lower loan-to-value ratios 
D)  Are not collateralized 
A)  Have lower interest rates 
B)  Have longer maturities 
C)  Have lower loan-to-value ratios 
D)  Are not collateralized

Question 9

"Teaser" rates are often offered on

Accepted Answer

A)  FRMs 
B)  ARMs 
C)  Commercial mortgages 
D)  Unsecured loans 
A)  FRMs 
B)  ARMs 
C)  Commercial mortgages 
D)  Unsecured loans

Question 10

A conforming mortgage

Accepted Answer

A)  Is the same as an ARM 
B)  Is the same as an FRM 
C)  Meets the Fannie Mae or Freddie Mac criteria for being included in one of their mortgage pools 
D)  Is held to maturity by the originator 
A)  Is the same as an ARM 
B)  Is the same as an FRM 
C)  Meets the Fannie Mae or Freddie Mac criteria for being included in one of their mortgage pools 
D)  Is held to maturity by the originator

Question 11

With a fixed-payment amortized loan

Accepted Answer

A)  The amount of payment going toward principal stays the same over the life of the mortgage 
B)  The amount of payment going to interest increases while the amount going to principal declines over the life of the mortgage 
C)  The amount of payment going to interest decreases while the amount going to principal increases over the life of the mortgage 
D)  All the payments go toward interest over the life of the mortgage 
A)  The amount of payment going toward principal stays the same over the life of the mortgage 
B)  The amount of payment going to interest increases while the amount going to principal declines over the life of the mortgage 
C)  The amount of payment going to interest decreases while the amount going to principal increases over the life of the mortgage 
D)  All the payments go toward interest over the life of the mortgage

Question 12

Second mortgages

Accepted Answer

A)  Have shorter maturities than first mortgages 
B)  Have higher interest rates than first mortgages 
C)  Have a lower claim than first mortgages 
D)  All of the above 
A)  Have shorter maturities than first mortgages 
B)  Have higher interest rates than first mortgages 
C)  Have a lower claim than first mortgages 
D)  All of the above

Home equity lines of credit (HELOCs)

By paying points, a home buyer

The average shape of the yield curve over long periods of time suggests that

Residential and nonresidential construction

Negative convexity

Which of the following features act to lower mortgage rates?

The prepayment option in a home mortgage

Compared to home mortgages, commercial mortgages

"Teaser" rates are often offered on

A conforming mortgage

With a fixed-payment amortized loan

Second mortgages

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

Principles of Portfolio Selection and Efficient Markets

The Money Market

The Bond Market

Securitization

The Equity Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Monetary Policy: Challenges Faced by Policymakers

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters

Exam 10: The Mortgage Market

Home equity lines of credit (HELOCs)

By paying points, a home buyer

The average shape of the yield curve over long periods of time suggests that

Residential and nonresidential construction

Negative convexity

Which of the following features act to lower mortgage rates?

The prepayment option in a home mortgage

Compared to home mortgages, commercial mortgages

"Teaser" rates are often offered on

A conforming mortgage

With a fixed-payment amortized loan

Second mortgages

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

Principles of Portfolio Selection and Efficient Markets

The Money Market

The Bond Market

Securitization

The Equity Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Monetary Policy: Challenges Faced by Policymakers

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters