Exam (elaborations)
REE4204 FINAL EXAM QUESTIONS WITH VERIFIED ANSWERS
- Course
- Institution
REE4204 FINAL EXAM QUESTIONS WITH VERIFIED ANSWERS
[Show more]
Content preview
REE4204 FINAL EXAM QUESTIONS WITHVERIFIED ANSWERS
False - ✔✔The maturity mismatch problem faced by many financial
institutions resulted from holding liabilities with much longer lives than their
assets.
False - ✔✔It is impossible for the cash flow on a project to be positive if
the taxable income is negative.
False - ✔✔Removing the rate ceilings on deposits in thrifts in the early 1980s
eliminated the maturity mismatch problem that these institutions had
previously suffered.
false - ✔✔Under the semi-strong form of market efficiency an investor
could earn excess returns using private or inside information.
True - ✔✔Disintermediation is the process of funds flowing out of
financial institutions.
True - ✔✔Favorable financial leverage occurs when the cost of debt is less
than the return on the investment.
False - ✔✔Agents never have incentives to pursue behavior which
is detrimental to their principals.
,False - ✔✔When a residential mortgage is created the mortgagee acquires
a call option which allows the debt to be retired at any time prior to maturity.
True - ✔✔The instrument called hypotheca allowed the lender to
take possession of the property only in the event of default.
True - ✔✔Mortgage bankers came into prominence with the
westward expansion following the Civil War.
True - ✔✔The interest rate risk inherent in a fixed-rate mortgage is the
decrease in value of the mortgage with an increase in market interest rates.
False - ✔✔A bi-weekly amortization mortgage payment is the
monthly payment divided by two.
False - ✔✔Mortgage payments are structured as an ordinary annuity,
meaning that payments fall at the beginning of each period.
True - ✔✔Everything else held constant, an interest-only payment will be
less than a fully amortizing payment.
False - ✔✔The present value of an annuity increases as the discount
rate increases.
, False - ✔✔A prepayment penalty increases the cost of borrowing since
the amount of the penalty is deducted from the borrower's initial proceeds.
8% - ✔✔Under the expectations theory, observed rates on current one-year
and two-year bonds of 4% and 6%, respectively, indicate that the one-year
bond rate one year from now will be between 4% and 6%.
True - ✔✔Under the expectations theory, an upwards sloping yield
curve means that investors expect market rates to rise in the future.
False - ✔✔The market segmentation theory by its nature dictates that
short term rates must always be less than long term rates.
True - ✔✔Default risk is the risk that a bond issuer will be unable to repay
the principal and interest on the debt.
True - ✔✔The yield observed on a riskless bond in a non-
inflationary environment would be the real rate of interest.
True - ✔✔A primary market transaction always involves the original issuer
of the security.
False - ✔✔The term "toxic mortgage debt" in the 2000s referred to
mortgages on properties
contaminated by hazardous waste.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Examsplug. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.24. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
62890 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now