Question 1

Four years ago,you borrowed $250,000 for 20 years at 8 percent.Payments are made monthly.How much interest have you paid thus far?

Accepted Answer

A) $74,222 
B) $75,756 
C) $75,909 
D) $76,456 
E) $77,121 
A) $74,222 
B) $75,756 
C) $75,909 
D) $76,456 
E) $77,121 D

Question 2

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 D

Question 3

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. A

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

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 6

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.

Question 7

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 8

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 9

The CPR for a seasoned 150 PSA mortgage is 9.8 percent.What is the single monthly mortality?

Accepted Answer

A) 0.8258 percent 
B) 0.8558 percent 
C) 0.8949 percent 
D) 0.9013 percent 
E) 0.9129 percent 
A) 0.8258 percent 
B) 0.8558 percent 
C) 0.8949 percent 
D) 0.9013 percent 
E) 0.9129 percent

Question 10

After 30 months,what is the 100 PSA benchmark conditional prepayment rate per year?

Accepted Answer

A) 3 percent 
B) 5 percent 
C) 6 percent 
D) 8 percent 
E) 12 percent 
A) 3 percent 
B) 5 percent 
C) 6 percent 
D) 8 percent 
E) 12 percent

Question 11

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 12

You recently assumed a 15-year mortgage for $150,000 at 6.5 percent interest.How much of the second monthly payment will be applied to the principal balance?

Accepted Answer

A) $453.02 
B) $482.02 
C) $685.00 
D) $809.82 
E) $938.18 
A) $453.02 
B) $482.02 
C) $685.00 
D) $809.82 
E) $938.18

Question 13

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 14

The total payment amount on an IO strip is:

Accepted Answer

A) fixed. 
B) equal to the interest rate multiplied by the par value multiplied by the PSA rate schedule. 
C) equal to the par value multiplied by the interest rate. 
D) unknown until all payments have been made. 
E) equal to the total interest computed on the bond's amortization schedule. 
A) fixed. 
B) equal to the interest rate multiplied by the par value multiplied by the PSA rate schedule. 
C) equal to the par value multiplied by the interest rate. 
D) unknown until all payments have been made. 
E) equal to the total interest computed on the bond's amortization schedule.

Question 15

A PAC support bond is most similar to which tranche in a sequential CMO?

Accepted Answer

A) A 
B) B 
C) C 
D) Z 
E) A PAC bond cannot be compared to a sequential CMO. 
A) A 
B) B 
C) C 
D) Z 
E) A PAC bond cannot be compared to a sequential CMO.

Question 16

PAC bondholders receive payments of principal based on which one of the following?

Accepted Answer

A) an amortization schedule 
B) PAC collar's lower PSA prepayment schedule 
C) PAC collar's upper PSA prepayment schedule 
D) receipt of all principal collected on the underlying pool of mortgages until the bond is paid in full 
E) zero principal from the underlying pool of mortgages until after the PAC companion bonds have been paid in full 
A) an amortization schedule 
B) PAC collar's lower PSA prepayment schedule 
C) PAC collar's upper PSA prepayment schedule 
D) receipt of all principal collected on the underlying pool of mortgages until the bond is paid in full 
E) zero principal from the underlying pool of mortgages until after the PAC companion bonds have been paid in full

Question 17

You own a mortgage passthrough.Which one of the following statements correctly describes the payments you will receive on that security?

Accepted Answer

A) The payments will decrease at a constant rate over the life of the security. 
B) The payments will increase at a decreasing rate over the life of the security. 
C) The payments will be fixed for the life of the security. 
D) The payments will vary depending upon the amount paid on the underlying mortgages each period. 
E) The payments will decrease based on the interest shown on the amortization schedule. 
A) The payments will decrease at a constant rate over the life of the security. 
B) The payments will increase at a decreasing rate over the life of the security. 
C) The payments will be fixed for the life of the security. 
D) The payments will vary depending upon the amount paid on the underlying mortgages each period. 
E) The payments will decrease based on the interest shown on the amortization schedule.

Question 18

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 19

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 20

Ten years ago,you borrowed $165,000 for 25 years at 7.5 percent interest.What is the current principal balance,assuming payments are made monthly?

Accepted Answer

A) $112,200 
B) $131,534 
C) $138,314 
D) $140,362 
E) $147,414 
A) $112,200 
B) $131,534 
C) $138,314 
D) $140,362 
E) $147,414

Four years ago,you borrowed $250,000 for 20 years at 8 percent.Payments are made monthly.How much interest have you paid thus far?

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

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

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

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

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

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?

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

The CPR for a seasoned 150 PSA mortgage is 9.8 percent.What is the single monthly mortality?

After 30 months,what is the 100 PSA benchmark conditional prepayment rate per year?

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?

You recently assumed a 15-year mortgage for $150,000 at 6.5 percent interest.How much of the second monthly payment will be applied to the principal balance?

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 total payment amount on an IO strip is:

A PAC support bond is most similar to which tranche in a sequential CMO?

PAC bondholders receive payments of principal based on which one of the following?

You own a mortgage passthrough.Which one of the following statements correctly describes the payments you will receive on that security?

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 will maximize the value of an IO strip?

Ten years ago,you borrowed $165,000 for 25 years at 7.5 percent interest.What is the current principal balance,assuming payments are made monthly?

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

Four years ago,you borrowed $250,000 for 20 years at 8 percent.Payments are made monthly.How much interest have you paid thus far?

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

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

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

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

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

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?

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

The CPR for a seasoned 150 PSA mortgage is 9.8 percent.What is the single monthly mortality?

After 30 months,what is the 100 PSA benchmark conditional prepayment rate per year?

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?

You recently assumed a 15-year mortgage for $150,000 at 6.5 percent interest.How much of the second monthly payment will be applied to the principal balance?

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 total payment amount on an IO strip is:

A PAC support bond is most similar to which tranche in a sequential CMO?

PAC bondholders receive payments of principal based on which one of the following?

You own a mortgage passthrough.Which one of the following statements correctly describes the payments you will receive on that security?

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 will maximize the value of an IO strip?

Ten years ago,you borrowed $165,000 for 25 years at 7.5 percent interest.What is the current principal balance,assuming payments are made monthly?

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 .