Fin350 Final recap Quiz 3

A lender with a fixed-rate mortgage bears the risk of future inflation. A) True B) False

A

All money market instruments are short-term liability securities. A) True B) False

A

Bankers' acceptances are used primarily for financing international trade. A) True B) False

A

Capital market borrowing by businesses is generally repaid from the cash flow generated by the assets financed. A) True B) False

A

Capital market securities are used to finance real capital investments. A) True B) False

A

Mortgage originators may retain the servicing right and fees even though the mortgage has been sold to a governmental agency. A) True B) False

A

Most mortgage loans are amortized over the maturity of the loan with interest computed on the declining principal. A) True B) False

A

Revenue bonds are generally considered more risky than general obligation bonds. A) True B) False

A

The primary market for junk bonds expanded for higher risk firms as the secondary market for junk bonds developed. A) True B) False

A

Which of the following may be a liability of a non-financial business corporation? A) commercial paper B) Federal Funds C) Treasury securities D) agency securities

A

Commercial banks are the largest institutional investor in mortgages. A) True B) False

A)

All of the following bond terms relate to maturity except A) serial. B) debenture. C) sinking fund. D) call provision.

B

Both governments and businesses issue both debt and equity capital market securities. A) True B) False

B

Eurodollars are euro-denominated deposits in U.S. banks. A) True B) False

B

For large corporations, commercial paper is more expensive but is a more assured alternative to bank borrowing. A) True B) False

B

Securitization of loan portfolios, such as credit card loans and mortgage loans, will occur if A) the financial market will pay more for the loan portfolio than the issued assetbacked securities. B) the financial market will pay more for the issued asset-backed securities than the loan portfolio. C) a financial guarantee is obtained from a commercial bank. D) the borrowers permit their loan to be securitized. E) both a and d

B

The original purpose of the Federal Home Loan Mortgage Corporation (Freddie Mac) was to A) make home loans to low income individuals. B) purchase the conventional mortgages from thrift institutions. C) purchase the insured conventional mortgages from financial institutions. D) purchase the government insured mortgages from thrift institutions.

B

Treasury bills are least marketable among money market securities. A) True B) False

B

Unlike mortgage-backed securities, individual mortgages are issued in standard denominations. A) True B) False

B

What is the monthly payment on a $100,000 fixed rate loan with a 6.5% rate with a term of 30 years? A) $657 B)$632 C)$638 D)$612

B

Which of the following is NOT a characteristic of money market instruments? A) short term to maturity B) small denominations C) low default risk D) high marketability E) All of the above are characteristics of money market securities.

B

Bonds issued by foreign entities in the United States are called: A) foreign bonds B) American depository receipts C) Yankee bonds D) Samurai bonds

C

Privately placed securities A) have to be registered with SEC. B) never trade in the secondary market. C) can only be sold to large, sophisticated investors (e.g., financial institutions). D) cannot be originally sold to less than 35 investors. 5) both c and d.

C

The bank discount rate (ask) on a 71-day T-bill is 4.86%. What is the bond equivalent yield on the T-bill? A) 4.86% B) 4.92% C) 4.98% D) 5.14%

C

The most common money market instrument utilized in the Fed's open market operations is A) Federal Funds. B) commercial paper. C) Treasury bills. D) Agency securities.

C

Calculate the bond equivalent yield on a 52-day T-bill selling for 98.555% of its face value. A) 10.85% B) 10.75% C) 10.54% D) 10.29%

D

If a 15-year monthly-payment $200,000 mortgage has a 7 percent of annual percentage rate. What is the loan balance after 10 years if paid as agreed? A) $92,721 B) $83,581 C) $85,492 D) $90,785

D

Private mortgage insurance protects the A) seller of the home. B) FHA. C) borrower. D) lender. E) government.

D

Which of the following is true about GNMA pass-through securities? A) Interest and principal from borrowers are passed through to investor. B) Federally insured imply mortgage loans guaranteed by the FHA, VA, and other authorized federal agencies. C) GNMA pass-throughs are secured by mortgage pools originated by mortgage banks, commercial banks, or other mortgage lending institutions. D) all of the above

D

Which of the following types of mortgages would be most advantageous to have on your house if you expected the annual rate of inflation would be higher than most people thought? A) reverse annuity mortgage B) interest-only mortgage C) adjustable-rate mortgage D) fixed-rate mortgage

D

The most important regulator in the U.S. capital markets is the A) Federal Reserve System B) Treasury Department C) National Association of Security Dealers (NASD) D) Federal Deposit Insurance Corporation E) Securities and Exchange Commission

E

The yield on a three-year Treasury note is 4.5% and the yield on a three-year TIPS 2.4%. What is the market's estimate of the annual inflation rate over the next three years? A) 1.1% B) 1.6% C) 4.5% D) 2.4% E) 2.1%

E

Which of the following statements about federal agency securities is true? A) All federal agency debt is explicitly guaranteed by the federal government. B) All federal agencies are owned by the federal government. C) Federal agency securities usually have yields of 3 to 20 basis points below Treasury bills. D) All of above statements are true. E) None of the above statements is true.

E