Question 1

Mortgage prepayments are generally a(n)________ to the mortgage borrower and a(n)________ to the mortgage investor.

Accepted Answer

A)  advantage; advantage 
B)  advantage; disadvantage 
C)  disadvantage; advantage 
D)  disadvantage; disadvantage 
E)  advantage; neutral event 
A)  advantage; advantage 
B)  advantage; disadvantage 
C)  disadvantage; advantage 
D)  disadvantage; disadvantage 
E)  advantage; neutral event

Question 2

Which one of the following terms is applied to the process of creating mortgage-backed securities from a pool of mortgages?

Accepted Answer

A)  mortgage aggregation 
B)  mortgage securitization 
C)  mortgage bundling 
D)  mortgage pooling 
E)  mortgage financing 
A)  mortgage aggregation 
B)  mortgage securitization 
C)  mortgage bundling 
D)  mortgage pooling 
E)  mortgage financing

Question 3

What are the securities which are created by splitting the cash flows from mortgage pools according to specific allocation rules called?

Accepted Answer

A)  collateralized mortgage obligations 
B)  collateralized housing bonds 
C)  mortgage amortized strips 
D)  pooled mortgage obligations 
E)  secured mortgage strips 
A)  collateralized mortgage obligations 
B)  collateralized housing bonds 
C)  mortgage amortized strips 
D)  pooled mortgage obligations 
E)  secured mortgage strips

Question 4

Which one of the following is the amount of a mortgage loan outstanding?

Accepted Answer

A)  mortgage remainder 
B)  mortgage face value 
C)  mortgage par value 
D)  mortgage principal 
E)  mortgage accrual 
A)  mortgage remainder 
B)  mortgage face value 
C)  mortgage par value 
D)  mortgage principal 
E)  mortgage accrual

Question 5

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following?

Accepted Answer

A)  lease payments from the tenants of financed property 
B)  interest only on mortgage loans 
C)  loan refinancings 
D)  condominium fees 
E)  pool of mortgages 
A)  lease payments from the tenants of financed property 
B)  interest only on mortgage loans 
C)  loan refinancings 
D)  condominium fees 
E)  pool of mortgages

Question 6

Which one of the following set of mortgage terms will cause the borrower to pay the most interest,assuming the mortgage is paid according to the amortization schedule?

Accepted Answer

A)  10-year, 6.5 percent 
B)  10-year, 7.0 percent 
C)  15-year, 7.0 percent 
D)  30-year, 6.5 percent 
E)  30-year, 7.0 percent 
A)  10-year, 6.5 percent 
B)  10-year, 7.0 percent 
C)  15-year, 7.0 percent 
D)  30-year, 6.5 percent 
E)  30-year, 7.0 percent

Question 7

Which one of the following is the government agency assigned the responsibility of promoting liquidity in the home mortgage market?

Accepted Answer

A)  FNMA 
B)  GNMA 
C)  FHLMC 
D)  SPIC 
E)  FDIC 
A)  FNMA 
B)  GNMA 
C)  FHLMC 
D)  SPIC 
E)  FDIC

Question 8

You have a 30-year,$180,000 mortgage.The interest rate is 7.5 percent.What is the amount of the mortgage prepayment if you pay $1,400 as your first payment?

Accepted Answer

A)  $128.50 
B)  $130.46 
C)  $132.65 
D)  $135.89 
E)  $141.41 
A)  $128.50 
B)  $130.46 
C)  $132.65 
D)  $135.89 
E)  $141.41

Question 9

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Accepted Answer

A)  subsidiary 
B)  sequential 
C)  PAC support 
D)  secondary 
E)  subordinate 
A)  subsidiary 
B)  sequential 
C)  PAC support 
D)  secondary 
E)  subordinate

Question 10

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

Accepted Answer

A)  10-year, 5.5 percent 
B)  10-year, 6.0 percent 
C)  15-year, 5.5 percent 
D)  15-year, 6.0 percent 
E)  30-year, 5.5 percent 
A)  10-year, 5.5 percent 
B)  10-year, 6.0 percent 
C)  15-year, 5.5 percent 
D)  15-year, 6.0 percent 
E)  30-year, 5.5 percent

Question 11

A mortgage pool is divided into A,B,C,and Z-tranches as discussed in the textbook.What happens to the initial interest payment for the Z tranche?

Accepted Answer

A)  It is immediately passed through to holders of Z tranche securities. 
B)  It is accumulated and held until the Z tranche securities mature. 
C)  It is exchanged for principal from the A tranche. 
D)  It is exchanged for principal from the B tranche. 
E)  It is exchanged for principal from the C tranche. 
A)  It is immediately passed through to holders of Z tranche securities. 
B)  It is accumulated and held until the Z tranche securities mature. 
C)  It is exchanged for principal from the A tranche. 
D)  It is exchanged for principal from the B tranche. 
E)  It is exchanged for principal from the C tranche.

Question 12

You want to borrow $200,000 at 4.5 percent 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)  $2,007.75; $1,237.50 
C)  $2,072.77; $1,265.30 
D)  $2,198.18; $1,303.88 
E)  $2,298.16; $1,433.50 
A)  $1,237.50; $1,103.88 
B)  $2,007.75; $1,237.50 
C)  $2,072.77; $1,265.30 
D)  $2,198.18; $1,303.88 
E)  $2,298.16; $1,433.50

Question 13

Historically,what has been the relationship between bond prepayment rates and the market rate of interest?

Accepted Answer

A)  perfectly related 
B)  directly related 
C)  inversely related 
D)  minimally related 
E)  unrelated 
A)  perfectly related 
B)  directly related 
C)  inversely related 
D)  minimally related 
E)  unrelated

Question 14

You acquired a 30-year mortgage two years ago to purchase your current residence.Your mortgage is classified as which one of the following?

Accepted Answer

A)  seasoned 
B)  unseasoned 
C)  conditional 
D)  complex 
E)  deferred 
A)  seasoned 
B)  unseasoned 
C)  conditional 
D)  complex 
E)  deferred

Question 15

Which one of the following statements regarding PAC bonds is correct?

Accepted Answer

A)  The cash flows from a PAC bond are less certain than those from a Z-tranche bond from a sequential CMO. 
B)  PAC bondholders receive the residual cash flows from the underlying mortgage pool. 
C)  PAC bonds are defined by the specific rules which created them. 
D)  PAC bonds have bounds based on market interest rates. 
E)  PAC bond cash flows are unaffected by mortgage prepayments. 
A)  The cash flows from a PAC bond are less certain than those from a Z-tranche bond from a sequential CMO. 
B)  PAC bondholders receive the residual cash flows from the underlying mortgage pool. 
C)  PAC bonds are defined by the specific rules which created them. 
D)  PAC bonds have bounds based on market interest rates. 
E)  PAC bond cash flows are unaffected by mortgage prepayments.

Question 16

Monthly payments to investors in GNMA mortgage-backed bonds include which of the following cash flows?
I.mortgage interest
II.fixed principal payment
III.scheduled amortization of mortgage principal
IV.mortgage prepayments

Accepted Answer

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

Question 17

What is the probability that a mortgage will be prepaid during a given year called?

Accepted Answer

A)  mortgage reduction rate 
B)  amortization rate 
C)  filtration rate 
D)  prepayment rate 
E)  postponement rate 
A)  mortgage reduction rate 
B)  amortization rate 
C)  filtration rate 
D)  prepayment rate 
E)  postponement rate

Question 18

How much faster will a mortgage pool with a PSA of 150 be prepaid as compared to the benchmark?

Accepted Answer

A)  150 times faster 
B)  15 times faster 
C)  1.5 times faster 
D)  1.5 times slower 
E)  15 times slower 
A)  150 times faster 
B)  15 times faster 
C)  1.5 times faster 
D)  1.5 times slower 
E)  15 times slower

Question 19

You have decided to pay $1,800 a month on your 30-year,$225,000 mortgage.The interest rate is 7.75 percent.What is your total prepayment amount for year two?

Accepted Answer

A)  $2,208 
B)  $2,257 
C)  $3,387 
D)  $3,979 
E)  $4,002 
A)  $2,208 
B)  $2,257 
C)  $3,387 
D)  $3,979 
E)  $4,002

Question 20

Which one of the following statements correctly relates to reverse mortgages?

Accepted Answer

A)  The loans allow homeowners to build equity in their property. 
B)  The total costs associated with the loans are relatively low. 
C)  Borrowers only qualify if they are 65 years of age or older. 
D)  Homeowner's make monthly payments of principal and interest. 
E)  No payments are required from the borrower as long as the borrower lives in the mortgaged property. 
A)  The loans allow homeowners to build equity in their property. 
B)  The total costs associated with the loans are relatively low. 
C)  Borrowers only qualify if they are 65 years of age or older. 
D)  Homeowner's make monthly payments of principal and interest. 
E)  No payments are required from the borrower as long as the borrower lives in the mortgaged property.

Mortgage prepayments are generally a(n) to the mortgage borrower and a(n) to the mortgage investor.

Which one of the following terms is applied to the process of creating mortgage-backed securities from a pool of mortgages?

What are the securities which are created by splitting the cash flows from mortgage pools according to specific allocation rules called?

Which one of the following is the amount of a mortgage loan outstanding?

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following?

Which one of the following set of mortgage terms will cause the borrower to pay the most interest,assuming the mortgage is paid according to the amortization schedule?

Which one of the following is the government agency assigned the responsibility of promoting liquidity in the home mortgage market?

You have a 30-year,$180,000 mortgage.The interest rate is 7.5 percent.What is the amount of the mortgage prepayment if you pay $1,400 as your first payment?

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

A mortgage pool is divided into A,B,C,and Z-tranches as discussed in the textbook.What happens to the initial interest payment for the Z tranche?

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

Historically,what has been the relationship between bond prepayment rates and the market rate of interest?

You acquired a 30-year mortgage two years ago to purchase your current residence.Your mortgage is classified as which one of the following?

Which one of the following statements regarding PAC bonds is correct?

Monthly payments to investors in GNMA mortgage-backed bonds include which of the following cash flows? I.mortgage interest II.fixed principal payment III.scheduled amortization of mortgage principal IV.mortgage prepayments

What is the probability that a mortgage will be prepaid during a given year called?

How much faster will a mortgage pool with a PSA of 150 be prepaid as compared to the benchmark?

You have decided to pay $1,800 a month on your 30-year,$225,000 mortgage.The interest rate is 7.75 percent.What is your total prepayment amount for year two?

Which one of the following statements correctly relates to reverse mortgages?

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

Mortgage prepayments are generally a(n)________ to the mortgage borrower and a(n)________ to the mortgage investor.

Which one of the following terms is applied to the process of creating mortgage-backed securities from a pool of mortgages?

What are the securities which are created by splitting the cash flows from mortgage pools according to specific allocation rules called?

Which one of the following is the amount of a mortgage loan outstanding?

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following?

Which one of the following set of mortgage terms will cause the borrower to pay the most interest,assuming the mortgage is paid according to the amortization schedule?

Which one of the following is the government agency assigned the responsibility of promoting liquidity in the home mortgage market?

You have a 30-year,$180,000 mortgage.The interest rate is 7.5 percent.What is the amount of the mortgage prepayment if you pay $1,400 as your first payment?

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

A mortgage pool is divided into A,B,C,and Z-tranches as discussed in the textbook.What happens to the initial interest payment for the Z tranche?

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

Historically,what has been the relationship between bond prepayment rates and the market rate of interest?

You acquired a 30-year mortgage two years ago to purchase your current residence.Your mortgage is classified as which one of the following?

Which one of the following statements regarding PAC bonds is correct?

Monthly payments to investors in GNMA mortgage-backed bonds include which of the following cash flows? I.mortgage interest II.fixed principal payment III.scheduled amortization of mortgage principal IV.mortgage prepayments

What is the probability that a mortgage will be prepaid during a given year called?

How much faster will a mortgage pool with a PSA of 150 be prepaid as compared to the benchmark?

You have decided to pay $1,800 a month on your 30-year,$225,000 mortgage.The interest rate is 7.75 percent.What is your total prepayment amount for year two?

Which one of the following statements correctly relates to reverse mortgages?

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

Mortgage prepayments are generally a(n) to the mortgage borrower and a(n) to the mortgage investor.

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