Question 1

Which one of the following terms applies to the process of reducing the mortgage principal over the life of the mortgage according to a schedule?

Accepted Answer

A) mortgage amortization 
B) mortgage prepayment 
C) mortgage elimination 
D) mortgage securitization 
E) mortgage passthrough 
A) mortgage amortization 
B) mortgage prepayment 
C) mortgage elimination 
D) mortgage securitization 
E) mortgage passthrough

Question 2

You have a 25-year,$225,000 mortgage at 5.5 percent interest.What is the amount of your mortgage prepayment if you pay $1,650 as your second mortgage payment? Assume your first payment was the agreed upon amount.

Accepted Answer

A) $241.93 
B) $248.25 
C) $268.30 
D) $276.37 
E) $289.65 
A) $241.93 
B) $248.25 
C) $268.30 
D) $276.37 
E) $289.65

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

Question 4

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 5

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 6

Generally,the average life of a mortgage is _____ the mortgage's stated maturity.

Accepted Answer

A) much less than 
B) marginally less than 
C) equal to 
D) marginally greater than 
E) significantly greater than 
A) much less than 
B) marginally less than 
C) equal to 
D) marginally greater than 
E) significantly greater than

Question 7

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 8

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 9

You just assumed a 30-year mortgage for $300,000 at 6 percent interest.How much of the first monthly payment will be applied to the principal balance?

Accepted Answer

A) $253.14 
B) $267.35 
C) $272.17 
D) $281.16 
E) $298.65 
A) $253.14 
B) $267.35 
C) $272.17 
D) $281.16 
E) $298.65

Question 10

Which one of the following statements correctly applies to an unseasoned mortgage?

Accepted Answer

A) The mortgage is less than 30 months old. 
B) The mortgage is still held by the original mortgage company. 
C) The mortgage has at least one term or provision that is uncommon to most mortgages. 
D) The mortgage has an adjustable interest rate that has not been adjusted to date. 
E) The mortgage was obtained by a first-time home owner. 
A) The mortgage is less than 30 months old. 
B) The mortgage is still held by the original mortgage company. 
C) The mortgage has at least one term or provision that is uncommon to most mortgages. 
D) The mortgage has an adjustable interest rate that has not been adjusted to date. 
E) The mortgage was obtained by a first-time home owner.

Question 11

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

Question 12

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

Question 13

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 14

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 15

What is the monthly mortgage payment on a $255,000,25-year loan if the interest rate is 5.50 percent?

Accepted Answer

A) $1,034.07 
B) $1,468.75 
C) $1,565.92 
D) $1,893.14 
E) $2,622.47 
A) $1,034.07 
B) $1,468.75 
C) $1,565.92 
D) $1,893.14 
E) $2,622.47

Question 16

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 17

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 18

Which one of the following statements correctly relates to GNMA securities?

Accepted Answer

A) The primary risk associated with GNMAs is default risk. 
B) The minimal denomination of a GNMA when issued is $10,000. 
C) GNMA mortgages are guaranteed solely by the FHA. 
D) GNMAs were originally established as an agency within the Department of Veteran's Affairs. 
E) If you buy a GNMA you are accepting the risk of prepayment. 
A) The primary risk associated with GNMAs is default risk. 
B) The minimal denomination of a GNMA when issued is $10,000. 
C) GNMA mortgages are guaranteed solely by the FHA. 
D) GNMAs were originally established as an agency within the Department of Veteran's Affairs. 
E) If you buy a GNMA you are accepting the risk of prepayment.

Question 19

How are the cash flows allocated when actual prepayments fall below a PAC collar's lower bound?

Accepted Answer

A) The entire cash flow is paid to the non-PAC support bonds until those bonds are paid in full. 
B) The cash flows are divided between PAC and non-PAC bonds on a pro-rata basis. 
C) PAC payments are recomputed to a reduced fixed amount. 
D) The entire cash flow is paid to the PAC bondholders. 
E) The interest income is paid to the non-PAC bondholders with all principal amounts paid to the PAC bondholders. 
A) The entire cash flow is paid to the non-PAC support bonds until those bonds are paid in full. 
B) The cash flows are divided between PAC and non-PAC bonds on a pro-rata basis. 
C) PAC payments are recomputed to a reduced fixed amount. 
D) The entire cash flow is paid to the PAC bondholders. 
E) The interest income is paid to the non-PAC bondholders with all principal amounts paid to the PAC bondholders.

Question 20

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.

Which one of the following terms applies to the process of reducing the mortgage principal over the life of the mortgage according to a schedule?

You have a 25-year,$225,000 mortgage at 5.5 percent interest.What is the amount of your mortgage prepayment if you pay $1,650 as your second mortgage payment? Assume your first payment was the agreed upon amount.

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

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?

Generally,the average life of a mortgage is _____ the mortgage's stated maturity.

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?

Which one of the following is a government agency?

You just assumed a 30-year mortgage for $300,000 at 6 percent interest.How much of the first monthly payment will be applied to the principal balance?

Which one of the following statements correctly applies to an unseasoned mortgage?

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

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?

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 is the key function of GNMA?

What is the monthly mortgage payment on a $255,000,25-year loan if the interest rate is 5.50 percent?

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?

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

Which one of the following statements correctly relates to GNMA securities?

How are the cash flows allocated when actual prepayments fall below a PAC collar's lower bound?

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

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 terms applies to the process of reducing the mortgage principal over the life of the mortgage according to a schedule?

You have a 25-year,$225,000 mortgage at 5.5 percent interest.What is the amount of your mortgage prepayment if you pay $1,650 as your second mortgage payment? Assume your first payment was the agreed upon amount.

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

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?

Generally,the average life of a mortgage is _____ the mortgage's stated maturity.

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?

Which one of the following is a government agency?

You just assumed a 30-year mortgage for $300,000 at 6 percent interest.How much of the first monthly payment will be applied to the principal balance?

Which one of the following statements correctly applies to an unseasoned mortgage?

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

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?

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 is the key function of GNMA?

What is the monthly mortgage payment on a $255,000,25-year loan if the interest rate is 5.50 percent?

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?

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

Which one of the following statements correctly relates to GNMA securities?

How are the cash flows allocated when actual prepayments fall below a PAC collar's lower bound?

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

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