FIN 364 DeVry Week 7 Homework
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<strong>FIN</strong> <strong>364</strong> <strong>DeVry</strong> <strong>Week</strong> 7 <strong>Homework</strong><br />
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<strong>FIN</strong> <strong>364</strong> <strong>DeVry</strong> <strong>Week</strong> 7 <strong>Homework</strong><br />
<strong>FIN</strong><strong>364</strong><br />
<strong>FIN</strong> <strong>364</strong> <strong>DeVry</strong> <strong>Week</strong> 7 <strong>Homework</strong><br />
<strong>FIN</strong> <strong>364</strong> <strong>DeVry</strong> <strong>Week</strong> 7 <strong>Homework</strong><br />
1. Question : (TCO 8) A contract designed to use the equity in a home for retirement income without any required<br />
payments is called a(n) _____.<br />
o<br />
o<br />
o<br />
o<br />
rollover mortgage<br />
reverse annuity mortgage<br />
adjustable-rate mortgage<br />
home equity loan<br />
Question 2. Question : (TCO 8) State and local governments make mortgage loans at below-market rates of<br />
interest because<br />
o<br />
o<br />
o<br />
o<br />
they want to compete with the thrifts.<br />
they want to help local thrift institutions.<br />
they can obtain funds for mortgage financing cheaply by selling tax-exempt securities.<br />
they lend to lower income, larger home buyers.<br />
Question 3. Question : (TCO 8) Which of the following is not a reasonable expectation for investors in passthrough<br />
mortgage securities?<br />
o<br />
o<br />
o<br />
o<br />
The securities are readily marketable.<br />
They have little default risk.<br />
The investor receives cash flows in proportion to his/her ownership proportion.<br />
The timing of the cash flow return from the securities is quite predictable.<br />
Question 4. Question : (TCO 8) Which of the following is not used to adjust ARM rates?<br />
o<br />
o<br />
o<br />
o<br />
Treasury security rates<br />
Dow Jones Mortgage Rate Index<br />
S & L cost of funds index<br />
LIBOR<br />
Question 5. Question : (TCO 8) Which of the following is not a mortgage-backed security?
o<br />
o<br />
o<br />
o<br />
A jumbo mortgage<br />
A Ginnie Mae pass-through<br />
A collateralized mortgage obligation<br />
A real estate mortgage investment conduit (REMIC)<br />
Question 6. Question : (TCO 8) If you were a manager of a thrift institution and you expected interest rates to<br />
increase, what type of mortgage would you most like to hold?<br />
o<br />
o<br />
o<br />
o<br />
Balloon payment, 10 years<br />
Rollover mortgage, two years<br />
Adjustable-rate mortgage, monthly<br />
Fixed-rate mortgage, 15 years<br />
Question 7. Question : (TCO 8) Which of the following is not associated with tightened mortgage credit<br />
standards?<br />
o<br />
o<br />
o<br />
o<br />
More time on the current job required.<br />
An increase in the loan/value ratio.<br />
A decrease in the maximum total debt payments per month per amount of monthly income.<br />
Decreased maximums in the payment/income ratio of borrowers.<br />
Question 8. Question : (TCO 8) Which of the following is not true about construction-to-permanent mortgages?<br />
o<br />
o<br />
o<br />
o<br />
Bridge financing is provided by lender over the time frame required by the borrower to purchase land and<br />
construct the house.<br />
Both interest and principal payments are made until construction is completed.<br />
Loan is financed in increments as construction payments have to be made.<br />
On completion of the construction, loan balance is rolled over into the type of mortgage contract desired by<br />
borrower.<br />
Question 9. Question : (TCO 8) Mortgage bankers usually do not<br />
o<br />
o<br />
o<br />
o<br />
permanently fund mortgages.<br />
originate mortgages.<br />
service mortgages.<br />
collect monthly payments from borrowers.<br />
Question 10. Question : (TCO 8) The Tax Reform Act of 1986 increased the popularity of home equity lines of<br />
credit because<br />
o<br />
o<br />
o<br />
o<br />
tax deductibility of interest for homeowners was reduced.<br />
interest incurred under home equity lines was made tax deductible, but interest on other household financing<br />
was not.<br />
banks and savings and loans were given tax incentives to make home equity lines of credit.<br />
the law reduced the rates charged on home equity loans.<br />
Question 11. Question : (TCO 8) Which of the following statements is true?<br />
o All fixed-rate mortgages have interest rate caps.<br />
o All adjustable rate mortgages have interest rate caps.<br />
o An interest rate cap on a mortgage reduces the lender's interest rate risk exposure.<br />
o Usually, an annual interest rate cap on a mortgage is 5%, and a lifetime cap is 1-2%.<br />
Question 12. Question : (TCO 8) The original purpose of the Federal Home Loan Mortgage Corporation (Freddie<br />
Mac) was to
o<br />
o<br />
o<br />
o<br />
make home loans to low income individuals.<br />
purchase the conventional mortgages from thrift institutions.<br />
purchase the insured conventional mortgages from financial institutions.<br />
purchase the government insured mortgages from thrift institutions.<br />
Question 13. Question : (TCO 8) What is the monthly payment on a $200,000 conventional fixed-rate mortgage,<br />
9 percent, financed for 15 years?<br />
o $2,028<br />
o $1,500<br />
o $1,389<br />
o $2,067<br />
Question 14. Question : (TCO 8) For a $200,000 conventional fixed-rate mortgage, 7 percent, financed for 15<br />
years, what is the loan balance after 10 years if paid as agreed?<br />
o $92,721<br />
o $83,581<br />
o $85,492<br />
o $90,785<br />
Question 15. Question : (TCO 8) What is the monthly payment on a home costing $150,000, 30 percent down,<br />
25 years at 9 percent?<br />
o $636.09<br />
o $881.16<br />
o $763.31<br />
o $677.82