REE4204 FINAL EXAM
QUESTIONS WITH VERIFIED
ANSWERS
True - ✔✔The Federal National Mortgage Association was
originally established in 1938 for the purpose of buying FHA
mortgages.
False - ✔✔The falling house prices in the mid-2000s generated greater
equity positions for those buyers who had recently purchased a home.
True - ✔✔Influence on current U.S. law related to real estate can be traced
all the way back to the Roman empire.
False - ✔✔The adjustable-rate mortgage allows the borrower to shift all
or some of the interest rate risk to the lender.
True - ✔✔Negative amortization increases the risk of default since,
at some point, the balance of the mortgage could exceed the value of
the property.
Put - ✔✔A homeowner incurring a residential mortgage acquires a ______
option which is generally exercised when the value of the property is less than the
amount owed on the mortgage.
,False - ✔✔A major factor of the collapse of the U.S. banking system
in the 1930s was the high number of long-term mortgages outstanding.
False - ✔✔A borrower taking a fifteen year mortgage versus a thirty
year mortgage will pay significantly more interest over the life of the
loan.
True - ✔✔The outstanding balance of a mortgage at a given point in time
is the present value of the remaining stream of payments discounted at the
contract rate.
True - ✔✔For a mortgage with no prepayment penalty and no
financing costs, early repayment does not affect the effective cost of the
loan.
True - ✔✔Since a fixed-rate mortgage establishes an interest rate for a
long period of time, this interest rate reflects the lender's expectations of
inflation over this time period.
True - ✔✔An incentive for the borrower to make extra payments on
his/her mortgage is that the lender cannot charge interest on any principal
amounts repaid.
False - ✔✔In order to derive the mortgage constant factor one must
know the amount of funds to be borrowed.
True - ✔✔A prepayment penalty, when stated as a percentage, is a
percentage of the outstanding balance at the time of prepayment.
, False - ✔✔The APR reported by the lender to the borrower
makes no assumption regarding the holding period of the mortgage.
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.
QUESTIONS WITH VERIFIED
ANSWERS
True - ✔✔The Federal National Mortgage Association was
originally established in 1938 for the purpose of buying FHA
mortgages.
False - ✔✔The falling house prices in the mid-2000s generated greater
equity positions for those buyers who had recently purchased a home.
True - ✔✔Influence on current U.S. law related to real estate can be traced
all the way back to the Roman empire.
False - ✔✔The adjustable-rate mortgage allows the borrower to shift all
or some of the interest rate risk to the lender.
True - ✔✔Negative amortization increases the risk of default since,
at some point, the balance of the mortgage could exceed the value of
the property.
Put - ✔✔A homeowner incurring a residential mortgage acquires a ______
option which is generally exercised when the value of the property is less than the
amount owed on the mortgage.
,False - ✔✔A major factor of the collapse of the U.S. banking system
in the 1930s was the high number of long-term mortgages outstanding.
False - ✔✔A borrower taking a fifteen year mortgage versus a thirty
year mortgage will pay significantly more interest over the life of the
loan.
True - ✔✔The outstanding balance of a mortgage at a given point in time
is the present value of the remaining stream of payments discounted at the
contract rate.
True - ✔✔For a mortgage with no prepayment penalty and no
financing costs, early repayment does not affect the effective cost of the
loan.
True - ✔✔Since a fixed-rate mortgage establishes an interest rate for a
long period of time, this interest rate reflects the lender's expectations of
inflation over this time period.
True - ✔✔An incentive for the borrower to make extra payments on
his/her mortgage is that the lender cannot charge interest on any principal
amounts repaid.
False - ✔✔In order to derive the mortgage constant factor one must
know the amount of funds to be borrowed.
True - ✔✔A prepayment penalty, when stated as a percentage, is a
percentage of the outstanding balance at the time of prepayment.
, False - ✔✔The APR reported by the lender to the borrower
makes no assumption regarding the holding period of the mortgage.
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.
