Question 1

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

Accepted Answer

A)  priority strip bond 
B)  principal strip 
C)  amortized principal strip 
D)  protected amortization class bond 
E)  principal priority tranche 
A)  priority strip bond 
B)  principal strip 
C)  amortized principal strip 
D)  protected amortization class bond 
E)  principal priority tranche

Question 2

The CPR for a seasoned 150 PSA mortgage is 8.4 percent.What is the single monthly mortality?

Accepted Answer

A)  0.7285 percent 
B)  0.7558 percent 
C)  0.7949 percent 
D)  0.8013 percent 
E)  0.8129 percent 
A)  0.7285 percent 
B)  0.7558 percent 
C)  0.7949 percent 
D)  0.8013 percent 
E)  0.8129 percent

Question 3

Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?

Accepted Answer

A)  prepaid 
B)  refinanced 
C)  secured 
D)  fully amortized 
E)  fully modified 
A)  prepaid 
B)  refinanced 
C)  secured 
D)  fully amortized 
E)  fully modified

Question 4

Which one of the following is the risk associated with receiving a mortgage bond's principal payments sooner than anticipated?

Accepted Answer

A)  prepayment risk 
B)  default risk 
C)  amortized risk 
D)  market risk 
E)  seasoned risk 
A)  prepayment risk 
B)  default risk 
C)  amortized risk 
D)  market risk 
E)  seasoned risk

Question 5

Which one of the following statements regarding an original issue $25,000 GNMA bond is correct?

Accepted Answer

A)  The investor will receive $25,000 as a principal payment at maturity. 
B)  The investor will receive fixed quarterly interest payments. 
C)  The investor will receive the future value of $25,000 at maturity. 
D)  The investor will receive payments totaling $25,000 over the life of the bond. 
E)  The investor should receive more than $25,000 but the amount of each payment is unknown in advance. 
A)  The investor will receive $25,000 as a principal payment at maturity. 
B)  The investor will receive fixed quarterly interest payments. 
C)  The investor will receive the future value of $25,000 at maturity. 
D)  The investor will receive payments totaling $25,000 over the life of the bond. 
E)  The investor should receive more than $25,000 but the amount of each payment is unknown in advance.

Question 6

After month 30,assuming that prepayments remain within the PAC collar,the holders of a PAC bond will receive which one of the following payments?

Accepted Answer

A)  a fixed principal payment only 
B)  a fixed interest payment only 
C)  a fixed principal payment plus a declining interest payment 
D)  a declining principal payment only 
E)  a declining principal payment and a declining interest payment 
A)  a fixed principal payment only 
B)  a fixed interest payment only 
C)  a fixed principal payment plus a declining interest payment 
D)  a declining principal payment only 
E)  a declining principal payment and a declining interest payment

Question 7

Which one of the following is a government agency?

Accepted Answer

A)  FHLMC 
B)  Fannie Mae 
C)  Freddie Mac 
D)  GNMA 
E)  FNMA 
A)  FHLMC 
B)  Fannie Mae 
C)  Freddie Mac 
D)  GNMA 
E)  FNMA

Question 8

Assume that a mortgage pool follows a specified PSA prepayment schedule.Given this,the cash flow yield on the mortgage pool will do which one of the following?

Accepted Answer

A)  equal the average interest rate of the mortgages contained in the pool 
B)  equal the anticipated cash flow for the next year divided by the current value of the pool 
C)  equate the present value of the future cash flows from the pool to the current value of the pool 
D)  equate the average interest rate on the mortgages to the current market rate of interest 
E)  equal the current market rate of interest 
A)  equal the average interest rate of the mortgages contained in the pool 
B)  equal the anticipated cash flow for the next year divided by the current value of the pool 
C)  equate the present value of the future cash flows from the pool to the current value of the pool 
D)  equate the average interest rate on the mortgages to the current market rate of interest 
E)  equal the current market rate of interest

Question 9

Interest-only strips are securities that do which one of the following?

Accepted Answer

A)  pay interest only at maturity 
B)  pay only the interest cash flows to investors 
C)  pay interest over the life of the security and the entire principal at maturity 
D)  pay interest only when requested by the holder with all remaining amounts paid at maturity 
E)  pay interest monthly and principal quarterly 
A)  pay interest only at maturity 
B)  pay only the interest cash flows to investors 
C)  pay interest over the life of the security and the entire principal at maturity 
D)  pay interest only when requested by the holder with all remaining amounts paid at maturity 
E)  pay interest monthly and principal quarterly

Question 10

Which one of the following is defined as bonds which represent a claim on the cash flows of an underlying pool of mortgages which flow through to bondholders?

Accepted Answer

A)  mortgage bonds 
B)  mortgage certificates 
C)  mortgage passthroughs 
D)  collateralized securities 
E)  mortgage collaterals 
A)  mortgage bonds 
B)  mortgage certificates 
C)  mortgage passthroughs 
D)  collateralized securities 
E)  mortgage collaterals

Question 11

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Accepted Answer

A)  remaining principal balance plus any accrued interest 
B)  present value of all future payments discounted at the current market rate 
C)  all remaining payments in full 
D)  remaining principal balance plus one year's interest 
E)  present value of the remaining principal balance 
A)  remaining principal balance plus any accrued interest 
B)  present value of all future payments discounted at the current market rate 
C)  all remaining payments in full 
D)  remaining principal balance plus one year's interest 
E)  present value of the remaining principal balance

Question 12

You just purchased a GNMA mortgage-backed security.Which one of the following should you expect to receive?

Accepted Answer

A)  fixed monthly payments 
B)  fixed quarterly payments 
C)  variable monthly payments 
D)  variable quarterly payments 
E)  quarterly payments that decrease at a constant rate 
A)  fixed monthly payments 
B)  fixed quarterly payments 
C)  variable monthly payments 
D)  variable quarterly payments 
E)  quarterly payments that decrease at a constant rate

Question 13

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

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 14

The value of an IO strip will most likely increase when:

Accepted Answer

A)  the PSA schedule rate decreases from 200 to 100. 
B)  market interest rates remain constant. 
C)  prepayments increase. 
D)  mortgage refinancings increase. 
E)  market interest rates decrease significantly. 
A)  the PSA schedule rate decreases from 200 to 100. 
B)  market interest rates remain constant. 
C)  prepayments increase. 
D)  mortgage refinancings increase. 
E)  market interest rates decrease significantly.

Question 15

How long is the expected average mortgage life of a mortgage held in a 30-year mortgage pool with a 100 PSA?

Accepted Answer

A)  14.68 years 
B)  18.29 years 
C)  21.33 years 
D)  23.90 years 
E)  25.25 years 
A)  14.68 years 
B)  18.29 years 
C)  21.33 years 
D)  23.90 years 
E)  25.25 years

Question 16

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 17

Which one of the following will maximize the value of an IO strip?

Accepted Answer

A)  prepaying all mortgages in the underlying mortgage pool 
B)  minimizing the duration of the underlying mortgage pool 
C)  maximizing the value of the PO strip 
D)  amortizing the bonds in the underlying pool faster than anticipated 
E)  creating conditions where no prepayments occur in the underlying mortgage pool 
A)  prepaying all mortgages in the underlying mortgage pool 
B)  minimizing the duration of the underlying mortgage pool 
C)  maximizing the value of the PO strip 
D)  amortizing the bonds in the underlying pool faster than anticipated 
E)  creating conditions where no prepayments occur in the underlying mortgage pool

Question 18

When can a homeowner prepay on his or her home mortgage?

Accepted Answer

A)  only on prespecified dates 
B)  only during the last five years of the loan period 
C)  only if the prepayment pays the mortgage balance in full 
D)  at any time 
E)  only if the property securing the mortgage is being sold 
A)  only on prespecified dates 
B)  only during the last five years of the loan period 
C)  only if the prepayment pays the mortgage balance in full 
D)  at any time 
E)  only if the property securing the mortgage is being sold

Question 19

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 20

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

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

The CPR for a seasoned 150 PSA mortgage is 8.4 percent.What is the single monthly mortality?

Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?

Which one of the following is the risk associated with receiving a mortgage bond's principal payments sooner than anticipated?

Which one of the following statements regarding an original issue $25,000 GNMA bond is correct?

After month 30,assuming that prepayments remain within the PAC collar,the holders of a PAC bond will receive which one of the following payments?

Which one of the following is a government agency?

Assume that a mortgage pool follows a specified PSA prepayment schedule.Given this,the cash flow yield on the mortgage pool will do which one of the following?

Interest-only strips are securities that do which one of the following?

Which one of the following is defined as bonds which represent a claim on the cash flows of an underlying pool of mortgages which flow through to bondholders?

Borrowers must pay which one of the following if they are to pay off their home mortgage?

You just purchased a GNMA mortgage-backed security.Which one of the following should you expect to receive?

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

The value of an IO strip will most likely increase when:

How long is the expected average mortgage life of a mortgage held in a 30-year mortgage pool with a 100 PSA?

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

Which one of the following will maximize the value of an IO strip?

When can a homeowner prepay on his or her home mortgage?

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

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?

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

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Exam 20: Mortgage-Backed Securities

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

The CPR for a seasoned 150 PSA mortgage is 8.4 percent.What is the single monthly mortality?

Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?

Which one of the following is the risk associated with receiving a mortgage bond's principal payments sooner than anticipated?

Which one of the following statements regarding an original issue $25,000 GNMA bond is correct?

After month 30,assuming that prepayments remain within the PAC collar,the holders of a PAC bond will receive which one of the following payments?

Which one of the following is a government agency?

Assume that a mortgage pool follows a specified PSA prepayment schedule.Given this,the cash flow yield on the mortgage pool will do which one of the following?

Interest-only strips are securities that do which one of the following?

Which one of the following is defined as bonds which represent a claim on the cash flows of an underlying pool of mortgages which flow through to bondholders?

Borrowers must pay which one of the following if they are to pay off their home mortgage?

You just purchased a GNMA mortgage-backed security.Which one of the following should you expect to receive?

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

The value of an IO strip will most likely increase when:

How long is the expected average mortgage life of a mortgage held in a 30-year mortgage pool with a 100 PSA?

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

Which one of the following will maximize the value of an IO strip?

When can a homeowner prepay on his or her home mortgage?

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

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?

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