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Finance
Q:
What is the monthly payment on a home costing $150,000, 30 percent down, 25 years at 9 percent?
a. $636.09
b. $881.16
c. $763.31
d. $677.82
Q:
Which of the following is true about GNMA pass-through securities?a. Interest and principal from borrowers are passed through to investor.b. Federally insured imply mortgage loans guaranteed by the FHA, VA, and other authorized federal agencies.c. GNMA pass-throughs are secured by mortgage pools originated by mortgage banks, commercial banks, or other mortgage lending institutions.d. all of the above
Q:
Private mortgage insurance protects the
a. seller of the home.
b. FHA.
c. borrower.
d. lender.
e. government.
Q:
Two mortgage investors, who have increased the percentage of mortgages outstanding in the last 20 years, are
a. thrift institutions and commercial banks.
b. commercial banks and insurance companies/pension funds.
c. mortgage pools and thrift institutions.
d. mortgage pools and commercial banks.
Q:
State and local governments make mortgage loans at below-market rates of interest because
a. they want to compete with the thrifts.
b. they want to help local thrift institutions.
c. they can obtain funds for mortgage financing cheaply by selling tax-exempt securities.
d. they lend to lower income, larger home buyers.
Q:
Which of the following is not a mortgage-backed security?
a. a jumbo mortgage
b. a Ginni Mae pass-through
c. a collateralized mortgage obligation
d. a real estate mortgage investment conduit (REMIC)
e. All of the above are mortgage-backed securities.
Q:
Which of the following is not a reasonable expectation for investors in pass-through mortgage securities?
a. The securities are readily marketable.
b. They have little default risk.
c. The investor receives cash flows in proportion to his/her ownership proportion.
d. The timing of the cash flow return from the securities is quite predictable.
e. All of the above are reasonable expectations for investors in pass-throughs.
Q:
Which of the following statements is not true of all pass-through securities?
a. They may not be repaid in full for 25 to 30 years.
b. They are viewed by the capital markets as having average maturities of much less than 30 years.
c. Their interest and principal repayments are predictable.
d. They pass through all payments of principal and interest from the underlying pool of mortgages to the investors.
Q:
If you were a manager of a thrift institution and you expected interest rates to increase, what type of mortgage would you most like to hold?
a. balloon payment, ten years
b. Rollover mortgage, two years
c. adjustable-rate mortgage, monthly
d. fixed-rate mortgage, 15 years
Q:
Which of the following hold the largest percentage of mortgages outstanding in the United States?
a. life insurance companies and pension funds
b. government agencies
c. mortgage pools
d. thrift institutions
Q:
Which of the following mortgages would you prefer to hold if you were a lender and you expected inflation of uncertain magnitude?
a. reverse annuity mortgages
b. conventional fixed-rate mortgages
c. adjustable-rate mortgage loans
d. balloon payment mortgages
Q:
How long does it take to repay one-half of the principal on a $70,000, 7 percent, 15 year mortgage loan?
a. 75 months
b. 90 months
c. 112 months
d. 123 months
e. 131 months
Q:
What will be the amount of interest paid in the first month of a $50,000, 7 percent, 25 year loan?
a. $305
b. $265
c. $257
d. $292
e. $338
Q:
You have just purchased a home and borrowed $50,000, 7 percent for 25 years, payable monthly. What is your monthly payment?
a. $338
b. $339
c. $353
d. $369
Q:
If you added $100 to the monthly payment on a 30-year, $100,000 fixed-rate loan with a 6.5% rate, how soon would your loan be paid off?
a. 249 months
b. 227 months
c. 185 months
d. 278 months
e. 360 months
Q:
What is the monthly payment on a $100,000 fixed rate loan with a 6.5% rate with a term of 30 years?
a. $657
b. $632
c. $638
d. $612
Q:
If a 15-years monthly-payment $200,000 mortgage has a 7 percent of annual percentage rate. What is the loan balance after 10 years if paid as agreed?
a. $92,721
b. $83,581
c. $85,492
d. $90,785
Q:
What is the monthly payment on a $200,000 conventional fixed-rate mortgage, 7 percent, financed for 15 years?
a. $1830
b. $1798
c. $1679
d. $1721
Q:
The largest sector of the capital debt market is associated with
a. corporate bonds
b. mortgages
c. state and municipal bonds
d. U.S. Treasury debt
Q:
A contract designed to use the equity in a home for retirement income without any required payments is called a(n)
a. rollover mortgage
b. reverse annuity mortgage
c. adjustable-rate mortgage
d. home equity loan
Q:
Which one of the following is not true about privately issued passthroughs (PIP)
a. They are similar to "Ginnie Maes" in that they are backed by mortgages that qualify for FHA or VA guarantees.
b. PIPs are issued by private institutions or mortgage bankers.
c. They are similar to "Ginnie Maes" except that they are backed by conventional mortgages that do not qualify for FHA or VA guarantees.
d. They are typically used to securitize large, non-conforming mortgage loans called jumbo loans.
Q:
Which of the following types of mortgages would be most advantageous to have on your house if you expected the annual rate of inflation would be higher than most people thought?
a. reverse annuity mortgage
b. interest-only mortgage
c. adjustable-rate mortgage
d. fixed-rate mortgage
Q:
The major regulator for the GNMA (Ginnie Mae), FNMA (Fannie Mae), and Federal Home Loan Banks is Federal Housing Finance Agency.
Q:
The process of packaging and/or selling mortgages which are then used to back publicly traded debt securities is collateralization.
Q:
On a fixed rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding.
Q:
A subprime mortgage is a mortgage made to borrower who has a below normal credit rating.
Q:
Interest rate caps limit the size of the decrease in the loan rate over the loan's life.
Q:
FHMLC buys FHA/VA insured mortgages from loan originators.
Q:
REMIC securities are a form of collateralized mortgage obligations that provide tax-free income to investor.
Q:
Pass-through securities pass through all principal and interest payments collected from homeowners, providing a predictable stream of cash flow to the investor.
Q:
Pass-through mortgage securities have standard denominations but uncertain cash flow.
Q:
Home equity credit lines are a form of second mortgage financing.
Q:
Mortgage pool securities have encouraged individuals, insurance companies, and pension funds to provide indirect mortgage financing.
Q:
Mortgage-backed securities are more liquid than individual mortgages.
Q:
CMO residual tranches have the first claim on the cash flow from a pool of mortgages.
Q:
An ARM, compared to a FRM, shifts the interest rate risk from the borrower to the lender.
Q:
In a conventional mortgage agreement the borrower owns the mortgaged home; the lender takes a lien against the home.
Q:
Most mortgage loans are amortized over the maturity of the loan with interest computed on the declining principal.
Q:
Unlike mortgage-backed securities, individual mortgages are issued in standard denominations.
Q:
Like corporate and municipal bonds, mortgages are issued in standard denominations.
Q:
A lender with a fixed-rate mortgage bears the risk of future inflation.
Q:
Mortgage originators may retain the servicing right and fees even though the mortgage has been sold to a governmental agency.
Q:
Investors in CMO securities are not exposed to prepayment risk.
Q:
Federal National Mortgage Association (FNMA) is a privately owned corporation with a line of credit from the U.S. Treasury.
Q:
Commercial banks are the largest institutional investor in mortgages.
Q:
Mortgage insurance was an important factor in the development of secondary mortgage markets.
Q:
You check Wall Street Journal and find information regarding a principal STRIP that will mature in 7 years. The price quote per hundred of par for this STRIP is 85.75%. Using semiannual compounding, what is the promised yield to maturity on the STRIP?
Q:
What factors have contributed to the increased globalization of bond markets?
Q:
U.S. Treasury STRIPs are of interest to individuals with IRA's or $401k pension plans. Why?
Q:
List the risks faced by bond investors.
Q:
What might determine whether an individual investor buys corporate or municipal bonds? Give an example.
Q:
Compare and contrast the characteristics of the securities of the money market with those of the capital market.
Q:
Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus?
a. AAA rated noncallable corporate bond with a sinking fund.
b. AA rated callable corporate bond without a sinking fund
c. AA rated callable corporate bond with a sinking fund
d. AAA rated callable corporate bond with a sinking fund
Q:
A Treasury Bond with a $1000 par is quoted at 97:14 Bid, 97:15 Ask. The clean price for you to buy this bond is
a. $974.38
b. $975.42
c. $974.69
d. $975.77
Q:
A putable bond gives the bondholders the right
a. to sell the bond back to the corporation at the original purchase price.
b. to sell the bond back to the corporation at a stated premium.
c. to sell the bond back to the corporation at the current market value.
d. to sell the bond back to the corporation at par.
Q:
All but one of the following may be associated with the increased globalization of bond markets:
a. the globalization of business activity
b. increased volatility in foreign exchange rates
c. Improved computer and telecommunications technology
d. the reduction in trade barriers and standardization of regulations.
Q:
Bonds issued by foreign entities in the United States are called:
a. foreign bonds
b. American depository receipts
c. Yankee bonds
d. Samurai bonds
Q:
The most important regulator in the U.S. capital markets is the
a. Federal Reserve System
b. Treasury Department
c. National Association of Security Dealers (NASD)
d. Federal Deposit Insurance Corporation
e. Securities and Exchange Commission
Q:
Which of the following is NOTassociated with credit enhancements for asset-backed securities?
a. Cash-collateral accounts that are deposits set aside to cover losses
b. Financial guarantees from bond insurance companies
c. Standby letters of credit from major commercial banks
d. A guarantee to pay from the borrowers
Q:
Securitization of loan portfolios, such as credit card loans and mortgage loans, will occur if
a. the financial market will pay more for the loan portfolio than the issued asset- backed securities.
b. the financial market will pay more for the issued asset-backed securities than the loan portfolio.
c. a financial guarantee is obtained from a commercial bank.
d. the borrowers permit their loan to be securitized.
e. both a and d
Q:
Letters of credit are mostly associated witha. financial guarantees.b. investment banking.c. a bond indenture.d. a commercial bank seasonal loan.
Q:
The quality of a financial guarantee depends on the reputation and financial strength of the
a. guarantor
b. investor
c. borrower
d. none of the above
Q:
Which of the following is not a difference between municipal bonds (munis) and corporate bonds?
a. Interest paid on munis is tax-exempt, while interest paid on corporate bonds is not.
b. Munis often have a range of maturities (are serial issues) but corporate bonds do not.
c. Unlike corporate bonds, munis are rated by bond-rating agencies such as Moody's.
d. All of the above are differences between munis and corporate bonds.
Q:
Credit-rating agency ratings are associated with which of the following investor risks?
a. interest rate risk
b. default risk
c. purchasing power risk
d. reinvestment risk
e. exchange rate risk
Q:
Life insurance companies and pension funds buy corporate bonds for which two major reasons?
a. tax sheltering and high yield
b. liquidity and high after-tax returns
c. liability maturity matching and high after-tax returns
d. low risk and liquidity
Q:
The demand for junk bonds came primarily from
a. life insurance companies
b. savings & loans association
c. pension funds
d. all of the above
Q:
In the 1980s, low credit quality businesses were able to first issue their new bond securities in which market?
a. municipal bond market
b. junk bond market
c. investment-grade bond market
d. secondary market
e. subprime mortgage market
Q:
In the primary market, corporate bonds cannot be sold through
a. securities exchanges such as NYSE
b. competitive sales
c. negotiated sales
d. private placement
Q:
All of the following bond terms relate to maturity except
a. serial.
b. debenture.
c. sinking fund.
d. call provision.
Q:
Corporate bonds are less marketable than money market instruments and corporate equities because
a. they have special features (e.g., call provisions) that make them difficult to value.
b. they are long-term securities, which tend to be riskier and less marketable.
c. both a and b
d. Corporate bonds are in fact not less marketable than money market instruments and corporate equities.
Q:
Privately placed securities
a. have to be registered with SEC.
b. never trade in the secondary market.
c. can only be sold to large, sophisticated investors (e.g., financial institutions).
d. cannot be originally sold to less than 35 investors.
e. both c and d.
Q:
Everything else being equal, a bond will sell at a higher yield if it
a. has a call provision.
b. has low default risk.
c. can be converted to stock.
d. is listed on an exchange.
Q:
Industrial development bonds (IDBs) are debt securities issued by:
a. the federal government
b. non profit organizations
c. state and local government agencies
d. nonfinancial businesses.
Q:
The largest investor in municipal bonds are
a. property and casualty insurance companies
b. commercial banks
c. households
d. mutual funds
e. pension funds
Q:
If average corporate bond and tax-exempt municipal bond rates were 8.33% and 6.25% respectively, an investor in the 34 percent marginal corporate tax bracket would purchase
a. the tax-exempt bond.
b. the corporate bond.
c. either security (i.e., the investor is indifferent)
d. the security with the higher pre-tax yield.
e. both a and d
Q:
If average corporate bond and tax-exempt municipal bond rates were 8.33% and 6.25% respectively, at what marginal tax rate would an investor be indifferent between the two?
a. 18%
b. 25%
c. 30%
d. 33%
e. 35%
Q:
An investor in the 34 percent federal tax bracket would probably select what investment (all with similar default risk)?
a. 7% municipal bond
b. 10% corporate bond
c. 11% mortgage
d. 9% Treasury bond
Q:
Which of the following terms is not commonly associated with municipal bonds?
a. inflation-protected bonds
b. serial bonds
c. general obligation bonds
d. revenue bonds
Q:
Which of the following would be least likely to purchase a tax-exempt municipal bond?
a. commercial bank
b. casualty insurance company
c. mutual fund
d. individuals in low tax brackets
Q:
Most general obligation bonds are sold through
a. direct placement.
b. negotiated bids.
c. competitive bids.
d. private placement.