Quiz #3 FINA 4380

A borrower with a lower credit score will have a ______ default risk than a borrower with a higher credit score. Multiple choice question.

higher

The larger the default risk, the ______ the return required.

higher

If the anticipated inflation increases, the premium required for inflation will ______.

increase

True or false: The interest rate that a bank will charge is affected by the time period.

T

One determinant of interest rates in the mortgage market is the ____ costs associated with a lenders money.

opportunity

Suppose you are offered a loan with a nominal rate of 10%, compounded monthly. What is the equivalent annual rate?

10.47%

If anticipated inflation was 2% but actual inflation was 5%, then unanticipated inflation was

3%

If you invest in a mortgage that pays 12% and inflation was 4%, what was the real rate of return on the mortgage?

8%

Match the type of CPM loan with its pay rate:

Fully amortizing matches Choice Greater than accrual rate Interest only matches Choice Equal to accrual rate Negative amortizing matches Choice Less than accrual rate

Match the type of CPM loan with the loan balance at maturity:

Fully amortizing-Fully repaid Partially amortizing-Not fully repaid Interest only-Equal to the amount borrowed Negative amortizing-Greater than the amount borrowed

The pricing of the interest rate is affected by the supply and demand of loanable funds and ___

Inflation

Unanticipated inflation adds ______ to the lender.

Risk

The accrual rate for a mortgage with annual payments will be ______.

annual

The mortgage market is part of a larger capital market, including?

bonds stocks

Inflation measures the change in ___ power.

purchasing or buying

Pricing a loan refers to which of the following items?

rate of interest fees

Determining the market rate of interest comes down to the ______ of loanable funds and ______ of borrowers.

supply; demand