Exam 1 REE 4204 Sirmans Questions and Correct Answers

In general, inflation is a monetary phenomenon resulting from an increase in money supply as opposed to resulting from an increase in general price levels. Ans True According to the liquidity premium theory, investors are willing to pay a price premium for securities with shorter maturities. Ans True For most investments, cash flow and net profit can be used interchangeably in asset valuation. (F) Ans False - not net profit, just cash flow Commercial banks are overseen by the Office of Thrift Supervision. (F) Ans False - S&L associations; mutual savings banks; credit unions are overseen by Thrift Institutions Since finance is concerned with the valuation of assets, it must explicitly consider the time value of money. Ans True Real Estate investment Trusts (REITs) specialize in investing in real property and mortgages on real property. Ans True The secondary mortgage market is the market where second (junior) mortgages are created. (F) Ans False - primary market is where mortgages are created and originated - mortgages are sold to secondary mortgage markets (fannie mae, freddie mac) Since the nominal interest rate can be observed in the market, a precise measure of future inflation can be determined. (F) Ans False - future inflation cannot be determined A yield curve shows the yields on bonds over time. (F) Ans False - Relates maturity and yield at the same point in time In today's mortgage market, due to the short-term nature of mortgages, most real estate financing takes place in the money markets. (F) Ans False - most real estate financing takes place in capital markets (long-term securities over 1 year