With the real rate at 3 percent, most loans were made at 10 percent last year. This year interest rates have declined to 8 percent. What was the expected inflation rate last year?

FIN364 all weeks discussion, homework, midterm and assignments

Devry FIN364 Week 1 Discussion DQ 1 & DQ 2

DQ 1

Financial Institutions (graded)

Financial institutions are classifiable by their origins, purposes, and major characteristics. What is the role of financial institutions as a part of financial systems? What are the main types of financial institutions, and what are the characteristics of the markets each institution serves? What are the risks that each type of institution faces, and can these risks change according to varying economic conditions? Which types of risk are most important to each type of institution? Why?

DQ 2

Efficiency of Financial Markets (graded)

Financial markets operate with varying degrees of efficiency. What are the main ways in which the efficiency of financial markets and instruments are defined? Which markets are most efficient? Least efficient? Based on what measures? Why?

Devry FIN364 Week 2 Discussion DQ 1 & DQ 2

DQ 1

Federal Reserve Policy Objectives (graded)

What objectives does the Fed keep in mind when setting monetary policy? What are the Fed’s priorities in terms of alternative objectives? Does the Fed always meet the intended objectives? Take some time and research historic and recent examples of monetary policy actions on the Internet. Did the Fed always meet the intended objective? Why or why not? (Once you have found the information, please be sure to post your source(s) within your response).

DQ 2

Monetary Policy Tools (graded)

Let’s discuss the actual tools of the Fed. What tools does the Fed use to execute monetary policy, and how do they work in practice? Of the monetary policy tools available to the Fed, which is preferred? Why?

Devry FIN364 Week 3 Discussion DQ 1 & DQ 2

DQ 1

Loanable Funds and Interest Rates (graded)

Let’s discuss the relationship between loanable funds and interest rates. What are the sources of loanable funds in the economy? How does the availability of loanable funds affect interest rates? What does this imply for the way in which the Fed manages the money supply?

DQ 2

Expectations and Interest Rates (graded)

What is the role of expectations in interest rate determination? How does expectations affect real and nominal interest rates? How and why do lenders make interest rate adjustments? How does this affect borrowers?

Devry FIN364 Week 4 Discussion DQ 1 & DQ 2

DQ 1

Bonds and Bond Duration (graded)

Suppose you have a goal of starting a new business 3 years from now and must accumulate enough funds for this project. You decide to invest in bonds, but are concerned about interest rate risk. How can duration be used to estimate and manage interest rate risk? How can the duration of a bond portfolio be adjusted? Why might an institution or investor want to do this?

DQ 2

Bond Characteristics and Behavior (graded)

How are bond prices related to interest rates? What are the impacts of tax treatments; marketability; and characteristics such as call provisions, put options, and conversion options on yield? Given your earlier answer, what are the characteristics of an ideal bond from an investor’s perspective?

Devry FIN364 Week 5 Discussion DQ 1 & DQ 2

DQ 1

Money Market Instruments in Detail (graded)

You are the CEO of a Fortune 500 company. You have two objectives:

1. invest $5 million cash on hand short term (overnight to one month); and
2. borrow $100 million for your firm’s working capital needs.

How would you achieve both objectives using the money markets? Describe your alternatives in terms of the characteristics of money markets instruments. Which of the money market instruments would you choose in each case? Why?

This section lists options that can be used to view responses.

DQ 2

Repos and Repo Transactions (graded)

What are repos? How popular are they as a money market instrument compared to other money market options? Under what circumstances does engaging in a repo transaction makes sense? How important are expectations to the repo transaction?

Devry FIN364 Week 6 Discussion DQ 1 & DQ 2

DQ 1

Securitizing Debt (graded)

What are the key things to consider when considering securitizing consumer debt such as auto loans or credit card debt? Should we trust the securitization of other loans such as mortgage notes? Why are these issues important? What is the role of guarantees in the securitization process?

DQ 2

Using Capital Markets (graded)

Capital markets can involve both large corporations and investors seeking long term investment options. Under what circumstances are capital markets appropriate for use by a large firm raising capital? Which capital markets instruments would be preferred by such a borrower? Why? And, should investors consider investing in instruments based in emerging markets? What are the risks?

Devry FIN364 Week 7 Discussion DQ 1 & DQ 2

DQ 1

Agency Debt (graded)

How do agencies such as Fannie Mae and Freddie Mac allow individual mortgage holders to collectively benefit from the agencies’ access to the capital markets? Does this access result in lower mortgage rates than would otherwise be the case? Are consumers able to have greater access to mortgage opportunities? Why or why not?

DQ 2

Mortgages and Mortgage-Backed Securities (graded)

Who are the typical holders of mortgages and mortgage-backed securities? What characteristics of mortgage-backed securities make them attractive to these entities? What entities are involved in the origination of mortgages and the exchange of mortgage-backed securities, and how can industry conditions impact these markets?

Devry FIN364 ALL Week Homework

Devry FIN364 Week 1 Homework

1. Question : (TCO 1) An SSU’s
   income and expenditures for the period are equal.

income for the period exceeds expenditures.

expenditures for the period exceed receipts.

spending is entirely financed by credit cards.

Question 2. Question : (TCO 1) An efficient financial system

eliminates search and transactions costs.

is a mere theoretical possibility.

promotes economic growth and social progress.

depends on high volumes of “direct” transactions.

Question 3. Question : (TCO 1) Which of the following are economic units?

Households

Businesses

Governments

All of the above

Points Received: 3 of 3

Comments:

Question 4. Question : (TCO 1) Profitability of financial intermediaries derives from all of the following except

government regulation of interest rates.

economies of scale.

ability to manage credit risk.

control of transactions costs.

Question 5. Question : (TCO 1) Money market mutual funds are a strong competitor for

depository institutions.

contractual savings institutions.

finance companies.

the real estate market.

Question 6. Question : (TCO 1) In direct financing, the lender

trades a financial claim for money.

trades money for a financial claim issued by a financial institution.

trades money with a broker who owns the financial claims of a borrower.

trades money for the financial claim of the borrower.

Question 7. Question : (TCO 1) ______ merely execute buy or sell orders for their clients; _______ make markets.

Dealers; brokers

Brokers; investment bankers

Dealers; financial institutions

Brokers; dealers

Question 8. Question : (TCO 1) The only deposit-type institutions that do not operate for profit are

thrift institutions.

credit unions.

pension funds.

commercial banks.

Question 9. Question : (TCO 1) Money market instruments and capital market instruments differ appreciably in

maturity.

liquidity.

availability to ordinary individual investors.

All of the above

Question 10. Question : (TCO 1) The best synonym for financial intermediation is

direct finance.

investment banking.

market making.

transformation of claims.

Question 11. Question : (TCO 1) Corporations list their securities on exchanges in order to

pay an annual listing fee and disclose important information.

enhance the liquidity of their securities for investors.

sell more securities.

increase the size of the firm.

Question 12. Question : (TCO 1) The money market is important because

it is the world’s liquidity market.

it is the market in which the Fed conducts monetary policy.

the federal government finances most of its credit needs in the money market.

All of the above

Question 13. Question : (TCO 1) Federal Funds are typically

treasury deposits.

Federal Reserve assets.

commercial bank deposits at the Federal Reserve.

Federal Reserve deposits.

Question 14. Question : (TCO 1) An S & L taking short-term deposits and financing local land development is engaging in

speculation.

maturity intermediation.

denomination intermediation.

currency transformation.

Question 15. Question : (TCO 1) Potential fluctuations in exchange rates and the currency value of one country relative to another represent

credit risk.

liquidity risk.

foreign exchange risk.

interest rate risk.

Devry FIN364 Week 2 Homework

Devry FIN364 Week 2 Homework Discussion

1. Question : (TCO 2) The asset of Federal Reserve banks associated with open market operations is
   Federal Reserve notes.

U.S. government securities.

loans to member banks.

float.

Question 2. Question : (TCO 2) Federal Reserve notes held in bank vaults are the liability or obligation of

the Fed.

the Treasury.

the bank.

None of the above

Question 3. Question : (TCO 2) When the New York Fed sells Treasury securities to a securities dealer,

the depository institutions deposits in the Fed decrease.

the depository institutions deposits in the Fed increase.

the deposit balance of the security dealer in its bank decreases.

both depository institutions deposits in the Fed decrease and the deposit balance of the security dealer in its bank decreases above.

Question 4. Question : (TCO 2) The purchase of government securities by the Fed will

decrease the money supply.

increase security prices.

increase interest rates.

decrease credit availability.

Question 5. Question : (TCO 2) The Federal Reserve System established

a system for federal chartering of banks.

a system for controlling bank note issuance.

a source of liquidity for the banking system.

the beginning of demand deposit accounts.

Question 6. Question : (TCO 2) The Fed’s most visible monetary tool is probably

open market operations.

change in reserve requirements.

Reg Z.

discount rate policy.

Question 7. Question : (TCO 2) Reserve requirements apply to

national banks.

state banks.

savings-and-loan associations.

All of the above

Question 8. Question : (TCO 2) Using this data, answer the question below:

Total Reserves $90,000,000

Reserve Requirement 5%

Total Deposits $700,000,000

What is the level of excess reserves?

$ 5,000,000

$ 55,000,000

$ 70,000,000

Not ascertainable

Question 9. Question : (TCO 3) The monetary base will decrease when

banks withdraw currency from the Fed.

the Fed makes loans at the discount window.

the Fed sells securities on the open market.

the Fed buys securities on the open market.

Question 10. Question : (TCO 3) An increase in the assets of Federal Reserve banks will

decrease the monetary base.

increase the monetary base.

has no effect on monetary base.

always decrease another Federal Reserve Bank asset.

Question 11. Question : (TCO 3) An increase in excess reserves will cause

the Fed Funds rate to rise.

planned inventory investment to fall.

depository institutions to lend more freely.

foreign investors to buy more T-Bills.

Question 12. Question : (TCO 3) Consumption spending should increase if

financial wealth decreases.

reserve requirements decrease.

interest rates increase.

credit availability decreases.

Question 13. Question : (TCO 3) If the money supply increases too rapidly then

inflationary expectations will rise.

government spending will decrease.

bank lending will decrease.

investment spending will fall.

Question 14. Question : (TCO 3) Monetary policy probably affects all of the following except

housing investment.

consumer durable investment.

inventory investment.

federal government budget outlays.

Question 15. Question : (TCO 3) Which of the following is not a channel of transmission of monetary policy?

Reg Q interest rate ceilings

Consumer spending for durable goods and housing

Net exports

Business investment in real assets

Devry FIN364 Week 3 Homework

Devry FIN364 Week 3 Homework Discussion

Question 1. Question : (TCO 4) Which of the following factors influence the real rate of interest?

Investor’s positive time preference

The gold supply

Return on capital investments

Both a and c

Question 2. Question : (TCO 4) Negative realized real rates of interest are associated with periods where

inflation forecasts significantly underestimate inflation.

nominal interest rates were too high relative to actual inflation.

prior inflation forecasts overestimated inflation.

bond prices were priced too low relative to actual inflation.

Question 3. Question : (TCO 4) The demand for loanable funds may shift upward (increase) from

a decline in the supply of loanable funds.

a decline in business prospects.

an improvement in technology.

an expectation of an upcoming recession.

Question 4. Question : (TCO 4) Which of the following is best associated with interest rate movements and inflation?

Interest rates move inversely with inflation.

Interest rates vary directly with expected inflation.

Interest rates vary directly with past inflation rates.

Inflation is impacted by expected interest rates.

Question 5. Question : (TCO 4) Deficit spending units (DSU) are represented in loanable funds theory as

suppliers of loanable funds.

demanders of financial claims.

demanders of loanable funds.

DSUs are not represented in the loanable funds theory of interest rate determination.

Question 6. Question : (TCO 4) Which of the following is more likely to adversely affect long-term bond prices?

A forecast of lower inflation in the future.

A forecast of a slower economy next year.

A forecast of higher inflation in the future.

A forecast of lower government budget deficits.

Question 7. Question : (TCO 4) Economies with very high current and expected inflation rates

will have a significant long-term debt market.

will have debt instruments with interest rates indexed to the inflation rate.

will favor long-term financing over short-term.

will have very low interest rates.

Question 8. Question : (TCO 4) A decrease in the money stock by the Federal Reserve

shifts the supply of loanable funds to the left, decreasing interest rates.

shifts the demand for loanable funds to the left, increasing interest rates.

shifts the supply of loanable funds to the left, increasing interest rates.

shifts the supply of loanable funds to the right, increasing interest rates.

Question 9. Question : (TCO 4) The lower a consumer’s positive time preference for consumption,

the more savings they will accumulate.

the lower the level of interest rates.

the greater the supply of loanable funds.

All of the above

Question 10. Question : (TCO 4) If the actual rate of inflation is less than the rate expected during a period,

the borrowers benefited at the expense of lenders.

the lenders benefited at the expense of borrowers.

both borrowers and lenders benefited.

neither borrowers nor lenders benefited.

Question 11. Question : (TCO 4) An increase (shift to right) in the supply of loanable funds (SL) may be related to all but one of the following?

An increase in the money supply.

An increase in household thriftiness.

An increase in household income.

An increase in personal income taxes.

Question 12. Question : (TCO 4) If the real rate of interest is 4% and the expected inflation rate was 7%, a loan at 12%

would reward the lender at the borrower’s expense.

would reward the borrower at the lender’s expense.

would penalize the lender at the borrower’s expense.

None of the above

Question 13. Question : (TCO 4) An investor received an 8 percent coupon rate last year on a $1000 bond purchased at par. The inflation rate during the year was 4 percent and is expected to be 5 percent next year. The realized real rate earned by the investor last year was

8%.

3%.

4%.

-1%.

Question 14. Question : (TCO 4) An investor earned 11 percent last year, a year when actual inflation was 9 percentand was expected to have been 6 percent. The investor realized real rate of return was

3%.

2%.

11%.

15%.

Question 15. Question : (TCO 4) With the real rate at 3 percent, most loans were made at 10 percent last year. This year interest rates have declined to 8 percent. What was the expected inflation rate last year?

5%

2%

7%

8%

Devry FIN364 Week 4 Midterm

1. Question : (TCO 1) Credit unions are _____ institutions.
   thrift

contractual

federal

depository

Question 2. Question : (TCO 1) The household sector is the largest surplus sector and invests in the capital market ______.

directly by purchasing stocks and bonds

indirectly through mutual funds

indirectly through pension funds

All of the above

Question 3. Question : (TCO 1) Money markets are associated with _______ ; capital markets are associated with ______.

liquidity; marketability

spot; future

liquidity; economic investment

primary; secondary

Question 4. Question : (TCO 1) Secondary capital markets have promoted economic growth in the United States because

they have increased marketability of stocks and bonds.

they have increased the public’s access to investment.

they have helped investors diversify.

All of the above

Question 5. Question : (TCO 1) Which of the following is not a debt security?

Corporate bonds

U.S. Government securities

Federal agency securities

Common stock

Question 6. Question : (TCO 1) A conditional contract granting its holder the right to buy assets in the future is a ______.

put

forward contract

futures contract

call

Question 7. Question : (TCO 1) The ease with which a financial claim can be resold is its ______.

quality

risk

marketability

perpetuity

Question 8. Question : (TCO 2) Who has a permanent vote on the FOMC?

President of the Federal Reserve Bank of New York

Federal Advisory Council

President of the Federal Reserve Bank of San Francisco

Congress

Question 9. Question : (TCO 2) An increase in Federal Reserve float

decreases bank reserve deposits in the Fed.

increases bank reserve deposits in the Fed.

has no impact upon bank reserves deposits in the Fed.

reduces the net loan granted by the Fed to member banks.

Question 10. Question : (TCO 2) If the Fed wanted to increase the money supply immediately but just slightly, it would most likely ______.

buy securities on the open market

lower the Discount Rate

lower reserve requirements

Any of the above would be suitable for this purpose.

Question 11. Question : (TCO 3) Unemployment should fall if ______.

wages increase and people expect prices to rise as well

wages increase and people expect prices to be stable

interest rates rise more than prices are expected to rise

the money supply increases

Question 12. Question : (TCO 3) Monetary policies directed toward increased economic growth may have what impact upon the value of the dollar in relation to other currencies?

Increase

Decrease

No effect

None of the above

Question 13. Question : (TCO 3) The “tools” of monetary policy, whether “viable” or not, include all the following except______.

changing the discount rate

open market operations

changes in reserve requirements

changes in the Federal Funds rate

Question 14. Question : (TCO 3) Monetarists and Keynesians agree that______.

monetary policy influences the real sector

changes in the money supply drive changes in interest rates

changes in interest rates drive changes in the money supply

monetary policy does not influence the real sector

Question 15. Question : (TCO 2, 3) Which of the following was not a responsibility of the early Federal Reserve?

Replace the National Banking system

Improve the payments system

Establish more rigorous bank supervision

Act as “lender of last resort”

Question 16. Question : (TCO 4) Which of the following statements about interest rates is incorrect?

Bond prices and interest rates change inversely with one another.

The expected rate of inflation affects current market interest rates.

Short-term interest rates are not as volatile as long-term interest rates.

Interest rates are directly related to the level of output in the economy.

Question 17. Question : (TCO 4) Interest rates should increase if

the economy is in a boom.

inflationary expectations have decreased.

the Federal Reserve has decreased M1 and the supply of loanable funds.

inflationary expectations have increased.

Question 18. Question : (TCO 4) Interest rates move ______ with expected inflation and _____ with economic activity.

directly; inversely

inversely; inversely

directly; directly

inversely; directly

Question 19. Question : (TCO 4) If nominal interest rates are 10% and expected inflation is 5%, ______.

actual inflation exceeds 10%

the real rate of interest is 5%

market rates are expected to increase to 15%

expected interest rates are 5%

Question 20. Question : (TCO 4) With the real rate at 5%, most loans were made at 10% last year. This year, interest rates have declined to 8%. What was the expected inflation rate last year?

5%

2%

10%

8%

1. Question : (TCO 1) List and briefly describe the main risks managed by financial intermediaries.
   Question 2. Question : (TCO 2) Explain why the Federal Reserve is less “independent” than it appears to be.

Question 3. Question : (TCO 3) What should happen to consumption if the monetary base increases? Explain.

Question 4. Question : (TCO 4) Explain why realized real rates of interest are sometimes negative but expected real rates are always positive. Give an example.

Devry FIN364 Week 5 Homework

1. Question : (TCO 6) Which of the following is not a characteristic of money market instruments?
   Short term to maturity

Small denominations

Low default risk

High marketability

Question 2. Question : (TCO 6) Small investors are likely to invest in the money market _____.

directly

locally

through banks

indirectly

Question 3. Question : (TCO 6) Which of the following may be a liability of a non-financial business corporation?

Commercial paper

Federal Funds

Treasury securities

Agency securities

Question 4. Question : (TCO 6) Which of the following money market rates is studied closely for indicators of changes in Federal Reserve monetary policy?

Federal Funds

Treasury bills

Commercial paper

Banker’s acceptances

Question 5. Question : (TCO 6) Issuers of commercial paper tend to be

large financial and nonfinancial firms.

firms with high credit risk.

small banks.

wealthy individuals.

Question 6. Question : (TCO 6) Banks invest in government securities for a variety of reasons except

income.

safety.

acceptable for collateral.

high relative yield.

Question 7. Question : (TCO 6) Which of the following money market instruments would typically be used in international transactions?

A Treasury bill

A banker’s acceptance

Commercial paper

A negotiable CD

Question 8. Question : (TCO 6) An important economic function of the U.S. government security dealer is to

underwrite Treasury securities.

“make a market” for Treasury securities.

support open market operations of the Federal Reserve.

All of the above

Question 9. Question : (TCO 6) Which of the following money market instruments is not sold on a discount basis?

Commercial paper

Negotiable certificates of deposit

Treasury bills

Banker’s acceptances

Question 10. Question : (TCO 6) Yields on three-month T-bills are more similar to

Two-year Treasury notes rates.

90-day commercial paper rates.

federal funds rates.

Aaa-rated corporate bond rates.

Question 11. Question : (TCO 6) A non-competitive bid in the Treasury securities auction market is characterized by

the bidder specifying the quantity of bills desired.

the bid not exceeding a specific dollar amount.

the bidders paying a price equal to the weighted average price of all competitive bids accepted.

All of the above

Question 12. Question : (TCO 6) A repurchase agreement calls for

a firm to sell securities with the agreement to buy them back later at a higher price.

a firm to buy securities with the agreement to sell them back later at a higher price.

a firm to sell securities with the agreement to buy them back later at a lower price.

a firm to buy securities with the agreement to sell them back later at a lower price.

Question 13. Question : (TCO 6) The Wall Street Journal publishes T-bill price (bid/ask) based on the _____ rate; with the _____ rate provided as the quoted (ask) yield on the T-bill.

bond equivalent; bank discount

effective annual; bank discount

bank discount; bond equivalent

bank equivalent; bank discount

Question 14. Question : (TCO 6) A firm buys $1,000,000 of a 30-day commercial paper issue for $995,450. The bond equivalent yield on this commercial paper is _____.

5.56%

5.46%

5.49%

5.54%

Question 15. Question : (TCO 6) Calculate the bond equivalent yield on a 52-day $1,000,000 T-bill issue selling for 98.555% of its face value.

10.85%

10.75%

10.54%

10.29%

Devry FIN364 Week 6 Homework

1. Question : (TCO 7) The secondary markets for capital market securities have facilitated economic growth in the U.S. because
   they help provide marketability for capital market claims.

they have increased people’s willingness to buy capital market claims.

they make people more willing to invest because they can more easily diversify their risk.

All of the above

Question 2. Question : (TCO 7) A capital market financing is most likely to finance

new plant and equipment.

seasonal inventory needs.

a quarterly dividend payment.

the sale of common stock.

Question 3. Question : (TCO 7) You purchase a Treasury inflation-protected note with an original principal amount of $1,000,000 and a 2.8 percent annual coupon (paid semiannually). What will the first coupon payment be if the semiannual inflation over the first six months is 1.2%?

$14,168

$14,000

$28,336

$28,000

Question 4. Question : (TCO 7) Which of the following statements about STRIPs is true?

STRIPs are sold directly by the Treasury Department.

When a STRIP is created, all interest payments become one security and the principal payment becomes the other.

Many small investors prefer STRIPs because they require a lower minimum investment than original Treasury notes and bonds.

Treasury securities dealers create STRIPs because they expect to sell the created zero-coupon securities for more than what they paid for the original Treasury security.

Question 5. Question : (TCO 7) Most general obligation bonds are backed by

corporations.

brokers.

the issuing government.

None of the above

Question 6. Question : (TCO 7) Corporate bonds are less marketable than money market instruments and corporate equities because

they have special features (e.g., call provisions) that make them difficult to value.

they are long-term securities, which tend to be riskier and less marketable.

they have special features (e.g., call provisions) that make them difficult to value and they are long-term securities, which tend to be riskier and less marketable.

corporate bonds are in fact not less marketable than money market instruments and corporate equities.

Question 7. Question : (TCO 7) The demand for junk bonds came primarily from

life insurance companies.

savings and loans association.

pension funds.

All of the above

Question 8. Question : (TCO 7) The current exchange rate between U.S. Dollar and Euro is $1.355/.738. It means that

one Euro can buy 0.738 Dollars.

one Dollar can buy 0.738 Euros.

one Euro can buy 1.355 Dollars.

both one Dollar can buy 0.738 Euros and one Euro can buy 1.355 Dollars.

Question 9. Question : (TCO 7) A payment guarantee issued by a commercial bank on behalf of an importer is a

sight draft.

time draft.

letter of credit.

documented transfer.

Question 10. Question : (TCO 7) Which of the following is not the reason the Eurocurrency market is an attractive place to store excess liquidity for corporations, countries, and individuals?

Investors are allowed to hold debt securities in bearer form

Automatic withholding of tax on interest earned

Investments earn higher returns

High liquidity of Eurocurrency deposits

Devry FIN364 Week 7 Homework

1. Question : (TCO 8) A contract designed to use the equity in a home for retirement income without any required payments is called a(n) _____.
   rollover mortgage

reverse annuity mortgage

adjustable-rate mortgage

home equity loan

Question 2. Question : (TCO 8) State and local governments make mortgage loans at below-market rates of interest because

they want to compete with the thrifts.

they want to help local thrift institutions.

they can obtain funds for mortgage financing cheaply by selling tax-exempt securities.

they lend to lower income, larger home buyers.

Question 3. Question : (TCO 8) Which of the following is not a reasonable expectation for investors in pass-through mortgage securities?

The securities are readily marketable.

They have little default risk.

The investor receives cash flows in proportion to his/her ownership proportion.

The timing of the cash flow return from the securities is quite predictable.

Question 4. Question : (TCO 8) Which of the following is not used to adjust ARM rates?

Treasury security rates

Dow Jones Mortgage Rate Index

S & L cost of funds index

LIBOR

Question 5. Question : (TCO 8) Which of the following is not a mortgage-backed security?

A jumbo mortgage

A Ginnie Mae pass-through

A collateralized mortgage obligation

A real estate mortgage investment conduit (REMIC)

Question 6. Question : (TCO 8) 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?

Balloon payment, 10 years

Rollover mortgage, two years

Adjustable-rate mortgage, monthly

Fixed-rate mortgage, 15 years

Question 7. Question : (TCO 8) Which of the following is not associated with tightened mortgage credit standards?

More time on the current job required.

An increase in the loan/value ratio.

A decrease in the maximum total debt payments per month per amount of monthly income.

Decreased maximums in the payment/income ratio of borrowers.

Question 8. Question : (TCO 8) Which of the following is not true about construction-to-permanent mortgages?

Bridge financing is provided by lender over the time frame required by the borrower to purchase land and construct the house.

Both interest and principal payments are made until construction is completed.

Loan is financed in increments as construction payments have to be made.

On completion of the construction, loan balance is rolled over into the type of mortgage contract desired by borrower.

Question 9. Question : (TCO 8) Mortgage bankers usually do not

permanently fund mortgages.

originate mortgages.

service mortgages.

collect monthly payments from borrowers.

Question 10. Question : (TCO 8) The Tax Reform Act of 1986 increased the popularity of home equity lines of credit because

tax deductibility of interest for homeowners was reduced.

interest incurred under home equity lines was made tax deductible, but interest on other household financing was not.

banks and savings and loans were given tax incentives to make home equity lines of credit.

the law reduced the rates charged on home equity loans.

Question 11. Question : (TCO 8) Which of the following statements is true?

All fixed-rate mortgages have interest rate caps.

All adjustable rate mortgages have interest rate caps.

An interest rate cap on a mortgage reduces the lender’s interest rate risk exposure.

Usually, an annual interest rate cap on a mortgage is 5%, and a lifetime cap is 1-2%.

Question 12. Question : (TCO 8) The original purpose of the Federal Home Loan Mortgage Corporation (Freddie Mac) was to

make home loans to low income individuals.

purchase the conventional mortgages from thrift institutions.

purchase the insured conventional mortgages from financial institutions.

purchase the government insured mortgages from thrift institutions.

Question 13. Question : (TCO 8) What is the monthly payment on a $200,000 conventional fixed-rate mortgage, 9 percent, financed for 15 years?

$2,028

$1,500

$1,389

$2,067

Question 14. Question : (TCO 8) For a $200,000 conventional fixed-rate mortgage, 7 percent, financed for 15 years, what is the loan balance after 10 years if paid as agreed?

$92,721

$83,581

$85,492

$90,785

Question 15. Question : (TCO 8) What is the monthly payment on a home costing $150,000, 30 percent down, 25 years at 9 percent?

$636.09

$881.16

$763.31

$677.82

devry fin364 week 7 Research Paper

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