REE4204 TEST 1 REVIEW QUESTIONS WITH REVISED ANSWERS
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Module
REE4204
Institution
REE4204
REE4204 TEST 1 REVIEW QUESTIONS WITH REVISED ANSWERS
Financial intermediaries:
a. lend credit to create assets for itself
b. purchase Treasury securities
c. purchase corporate bonds
d. lend credit to suppliers to create deposit. - Answer-a.* lend credit to create assets for itself
Liqui...
REE4204 TEST 1 REVIEW QUESTIONS
WITH REVISED ANSWERS
Financial intermediaries:
a. lend credit to create assets for itself
b. purchase Treasury securities
c. purchase corporate bonds
d. lend credit to suppliers to create deposit. - Answer-a.* lend credit to create assets for
itself
Liquidity risk:
a. is high for investments in real property
b. is related to how quickly an asset can be converted to cash without loss of volume
c. can be avoided by a bank obtaining insurance such as with the Federal Deposit
Insurance Corporation
d. is low for checking accounts - Answer-b.* is related to how quickly an asset can be
converted to cash without loss of volume
Interest rate risk for thrifts occurs partially because they:
a. issue short-term deposits
b. issue long-term notes
c. invest in long-term variable rate mortgages
d. invest in short-term mortgages - Answer-a.* issue short-term deposits
Portfolio construction allows for a reduction in risk of the portfolio over individual assets:
a. at a significant reduction in expected return
b. without a change in expected returns
c. with additional cost
d. with a reduction in cost - Answer-b.* without a change in expected returns
An asset is priced efficiently when:
a. some individuals can make excess returns using publicly available information
b. no one individual can make an excessive return with public information
c. any investor can make an excessive return with information only available to him or
her
d. no investor can make an excessive return with information not available to
everyone - Answer-b. no one individual can make an excessive return with public
information
,Monitoring costs do NOT include:
a. auditing the books
b. inspecting the property
c. paying property taxes
d. checking on the operations of the manager - Answer-c. paying property taxes
Conditions that do NOT lead to market efficiency include:
a. uniform and widespread information
b. no transaction costs
c. market restrictions
d. a large number of buyers and sellers - Answer-c. market restrictions
Weak-form market efficiency exists:
a. when the price of the asset reflects past price behavior and public information
b. when the current price reflects all information including inside information
c. when the price of the asset completely reflects its historical price behavior
d. when the price of an asset is completely speculative (no information available) -
Answer-c. when the price of the asset completely reflects its historical price behavior
Pass-through Mortgage Backed Securities (MBSs) provide the investor with:
a. less prepayment risk as the originator of a specific mortgage
b. a prorated share of all monthly principal and interest payments
c. no risk from prepayments of loans
d. a weighted average of the monthly principal but not interest payments - Answer-b. a
prorated share of all monthly principal and interest payments
In Roman law the an instrument used to secure a loan was called a fiducia, which
means:
a. public
b. trust
c. finance
d. secrecy - Answer-b. trust
The Federal Deposit Insurance Corporation was enacted to insure:
a. FHA loans
b. conventional loans
c. savings accounts at depository institutions
d. the solvency of pension plans - Answer-c. savings accounts at depository institutions
The Federal National Mortgage Association was formed in part to:
, a. buy and sell VA mortgages
b. buy and sell FHA mortgages
c. buy and sell conventional mortgages
d. none of the above - Answer-b. buy and sell FHA mortgages
The annual percentage rate (APR) on a mortgage is:
a. the contract rate as established by the lender
b. the effective yield taking into account discount points
c. the rate for the first year only
d. the monthly rate multiplied by twelve - Answer-b. the effective yield taking into
account discount points
The amortization schedule of a mortgage shows:
a. that the principal balance declines with each payment
b. that the interest portion of the payment declines with each payment
c. that the portion of the payment representing payment of principal increases with each
payment
d. all of the above - Answer-d. all of the above
A discount point is:
a. one percent of the original loan balance
b. determined only at the loan closing
c. the same as the origination fee
d. none of the above - Answer-a. one percent of the original loan balance
The Truth-in-Lending law:
a. requires the lender disclose the APR on a mortgage loan
b. requires the lender disclose the total finance charges on a mortgage loan
c. provides for penalties for failure to accurately disclose the APR
d. all of the above - Answer-d. all of the above
The effective interest charge on a loan will be effected by:
a. the APR
b. discount points
c. appraisal costs
d. none of the above - Answer-d. none of the above
The ability of a borrower in any state to redeem his or her property after a period of
delinquency is called:
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