Question 1

The CPR for an unseasoned 100 PSA mortgage is 4.5 percent.What is the single monthly mortality?

Accepted Answer

A)  0.3557 percent 
B)  0.3635 percent 
C)  0.3752 percent 
D)  0.3830 percent 
E)  0.3986 percent 
A)  0.3557 percent 
B)  0.3635 percent 
C)  0.3752 percent 
D)  0.3830 percent 
E)  0.3986 percent D

Question 2

The ________ duration for mortgage-backed securities is the duration measure that accounts for how mortgage prepayments are affected by changes in interest rates.

Accepted Answer

A)  mean 
B)  modified 
C)  average 
D)  effective 
E)  adjusted 
A)  mean 
B)  modified 
C)  average 
D)  effective 
E)  adjusted D

Question 3

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage?
I.current mortgage balance on the home
II.age of homeowner
III.location of the home
IV.appraised value of the home

Accepted Answer

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

Question 4

Which one of the following is most apt to create an environment that increases mortgage prepayments?

Accepted Answer

A)  home mortgage rates remain relatively steady 
B)  home mortgage rates decline significantly 
C)  number of homeowner's defaulting on their mortgages rises 
D)  homeowner's have steady, secure employment at their current jobs 
E)  number of employees being transferred for employment purposes declines 
A)  home mortgage rates remain relatively steady 
B)  home mortgage rates decline significantly 
C)  number of homeowner's defaulting on their mortgages rises 
D)  homeowner's have steady, secure employment at their current jobs 
E)  number of employees being transferred for employment purposes declines

Question 5

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.Which tranche will have the longest life?

Accepted Answer

A)  A-tranche 
B)  B-tranche 
C)  C-tranche 
D)  Z-tranche 
E)  All tranches will have equal lives. 
A)  A-tranche 
B)  B-tranche 
C)  C-tranche 
D)  Z-tranche 
E)  All tranches will have equal lives.

Question 6

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 7

A mortgage pool was created six years ago.Which one of the following PSA values is most apt to apply to that pool if market mortgage rates have been declining quite rapidly over the past five years?

Accepted Answer

A)  0 
B)  50 
C)  100 
D)  150 
E)  200 
A)  0 
B)  50 
C)  100 
D)  150 
E)  200

Question 8

Which one of the following is a security that only pays the principal cash flows to investors?

Accepted Answer

A)  split strip 
B)  interest-only strip 
C)  amortized strip 
D)  principal-only strip 
E)  final strip 
A)  split strip 
B)  interest-only strip 
C)  amortized strip 
D)  principal-only strip 
E)  final strip

Question 9

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.The mortgage principal will initially be paid to which one of the tranches?

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 10

Mortgage prepayments are best defined by which one of the following?

Accepted Answer

A)  reducing the mortgage according to a schedule over the life of the mortgage 
B)  paying a monthly mortgage payment before the regular due date 
C)  paying off the principal faster than required by the amortization schedule 
D)  paying a cash deposit when purchasing a property 
E)  paying each mortgage payment as scheduled 
A)  reducing the mortgage according to a schedule over the life of the mortgage 
B)  paying a monthly mortgage payment before the regular due date 
C)  paying off the principal faster than required by the amortization schedule 
D)  paying a cash deposit when purchasing a property 
E)  paying each mortgage payment as scheduled

Question 11

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

Question 12

The average time it takes for a mortgage in a pool to be paid off is referred to as which one of the following?

Accepted Answer

A)  average amortized period 
B)  seasoned period 
C)  maturity life 
D)  average life 
E)  normal pool life 
A)  average amortized period 
B)  seasoned period 
C)  maturity life 
D)  average life 
E)  normal pool life

Question 13

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90th payment has been paid?

Accepted Answer

A)  zero 
B)   $75,000 
E)  cannot be determined from the information provided 
A)  zero 
B)   $75,000 
E)  cannot be determined from the information provided

Question 14

You are assuming a 30-year mortgage for $280,000 at 4.5 percent interest.How much would you save in interest if you financed this loan at 4 percent 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 15

Which one of the following is the reason that Macaulay duration is NOT a good measure of interest rate risk for mortgage bonds?

Accepted Answer

A)  Mortgage bonds are long-term securities while Macaulay duration is a short-term measure. 
B)  Macaulay duration assumes the debt has a variable rate and most mortgages have a fixed rate. 
C)  Macaulay duration requires bond payments to be made semi-annually. 
D)  Macaulay duration assumes payments are fixed and mortgage bond payments vary. 
E)  Macaulay duration only applies to zero-coupon bonds. 
A)  Mortgage bonds are long-term securities while Macaulay duration is a short-term measure. 
B)  Macaulay duration assumes the debt has a variable rate and most mortgages have a fixed rate. 
C)  Macaulay duration requires bond payments to be made semi-annually. 
D)  Macaulay duration assumes payments are fixed and mortgage bond payments vary. 
E)  Macaulay duration only applies to zero-coupon bonds.

Question 16

You are borrowing $300,000 for 20 years at 4 percent.Payments will be made monthly.What is the total amount of interest you will pay if you pay the loan as agreed over the 20 years?

Accepted Answer

A)  $114,786 
B)  $124,340 
C)  $136,306 
D)  $164,120 
E)  $196,342 
A)  $114,786 
B)  $124,340 
C)  $136,306 
D)  $164,120 
E)  $196,342

Question 17

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

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 18

When a borrower pays a fixed monthly amount on his or her home mortgage based on a fixed rate of interest,he or she has which type of mortgage?

Accepted Answer

A)  prepayment-based 
B)  open-end 
C)  fixed-rate 
D)  variable-rate 
E)  floating-rate 
A)  prepayment-based 
B)  open-end 
C)  fixed-rate 
D)  variable-rate 
E)  floating-rate

Question 19

FHLMC and FNMA are government-sponsored enterprises charged with which one of the following duties?

Accepted Answer

A)  providing home mortgages directly to homeowners 
B)  purchasing only defaulted mortgages from banking institutions 
C)  guaranteeing mortgages with the full faith and credit of the U.S. government 
D)  providing guarantees equal to GNMA's to the home mortgage market 
E)  promoting liquidity in the home mortgage market 
A)  providing home mortgages directly to homeowners 
B)  purchasing only defaulted mortgages from banking institutions 
C)  guaranteeing mortgages with the full faith and credit of the U.S. government 
D)  providing guarantees equal to GNMA's to the home mortgage market 
E)  promoting liquidity in the home mortgage market

Question 20

Which one of the following is the measure of interest rate risk for fixed-income securities?

Accepted Answer

A)  standard deviation 
B)  Macaulay duration 
C)  variance 
D)  Jensen's alpha 
E)  beta 
A)  standard deviation 
B)  Macaulay duration 
C)  variance 
D)  Jensen's alpha 
E)  beta

The CPR for an unseasoned 100 PSA mortgage is 4.5 percent.What is the single monthly mortality?

The ________ duration for mortgage-backed securities is the duration measure that accounts for how mortgage prepayments are affected by changes in interest rates.

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage? I.current mortgage balance on the home II.age of homeowner III.location of the home IV.appraised value of the home

Which one of the following is most apt to create an environment that increases mortgage prepayments?

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.Which tranche will have the longest life?

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

A mortgage pool was created six years ago.Which one of the following PSA values is most apt to apply to that pool if market mortgage rates have been declining quite rapidly over the past five years?

Which one of the following is a security that only pays the principal cash flows to investors?

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.The mortgage principal will initially be paid to which one of the tranches?

Mortgage prepayments are best defined by which one of the following?

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 .

The average time it takes for a mortgage in a pool to be paid off is referred to as which one of the following?

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90^th payment has been paid?

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

Which one of the following is the reason that Macaulay duration is NOT a good measure of interest rate risk for mortgage bonds?

You are borrowing $300,000 for 20 years at 4 percent.Payments will be made monthly.What is the total amount of interest you will pay if you pay the loan as agreed over the 20 years?

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

When a borrower pays a fixed monthly amount on his or her home mortgage based on a fixed rate of interest,he or she has which type of mortgage?

FHLMC and FNMA are government-sponsored enterprises charged with which one of the following duties?

Which one of the following is the measure of interest rate risk for fixed-income securities?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Filters

Exam 20: Mortgage-Backed Securities

The CPR for an unseasoned 100 PSA mortgage is 4.5 percent.What is the single monthly mortality?

The ________ duration for mortgage-backed securities is the duration measure that accounts for how mortgage prepayments are affected by changes in interest rates.

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage? I.current mortgage balance on the home II.age of homeowner III.location of the home IV.appraised value of the home

Which one of the following is most apt to create an environment that increases mortgage prepayments?

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.Which tranche will have the longest life?

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

A mortgage pool was created six years ago.Which one of the following PSA values is most apt to apply to that pool if market mortgage rates have been declining quite rapidly over the past five years?

Which one of the following is a security that only pays the principal cash flows to investors?

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.The mortgage principal will initially be paid to which one of the tranches?

Mortgage prepayments are best defined by which one of the following?

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 ________.

The average time it takes for a mortgage in a pool to be paid off is referred to as which one of the following?

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90th payment has been paid?

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

Which one of the following is the reason that Macaulay duration is NOT a good measure of interest rate risk for mortgage bonds?

You are borrowing $300,000 for 20 years at 4 percent.Payments will be made monthly.What is the total amount of interest you will pay if you pay the loan as agreed over the 20 years?

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

When a borrower pays a fixed monthly amount on his or her home mortgage based on a fixed rate of interest,he or she has which type of mortgage?

FHLMC and FNMA are government-sponsored enterprises charged with which one of the following duties?

Which one of the following is the measure of interest rate risk for fixed-income securities?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Filters

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 .

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90^th payment has been paid?