UNIVERSITY OF CALIFORNIA, LOS ANGELES: MGMT 170/
MGMT170 -EXAM 300 ACTUAL QUESTIONS AND CORRECT
ANSWERS WITH RATIONALE LATEST UPDATE ALREADY
GRADED A+ ASSURED PASS
Section 1: Mortgage Finance and Loan Structure (1–40)
1. A fixed-rate, fully amortizing mortgage loan of $1,000,000 is written for 30
years at a 6% annual interest rate with monthly payments. What is the monthly
payment?
A. $5,000.00
B. $5,995.51
C. $6,002.48
D. $6,090.00
Answer: B
Rationale: Using the mortgage payment formula: PMT = PV × [r(1 + r)ⁿ] / [(1 + r)ⁿ
− 1]. PV = $1,000,000, monthly r = 0.06/12 = 0.005, n = 360. The PMT is
approximately $5,995.51.
2. A borrower takes out a $500,000 mortgage with a 2-point origination fee. How
much does the borrower pay in points?
A. $5,000
B. $10,000
C. $15,000
D. $20,000
Answer: B
Rationale: A point equals 1% of the loan amount. 2 points = 2% × $500,000 =
$10,000. Loan fees and points increase the lender's effective yield.
,3. The difference between the nominal/contract interest rate and the expected
inflation rate is the:
A. Accrual rate
B. Effective annual interest rate
C. Real interest rate
D. Pay rate
Answer: C
Rationale: The real interest rate is the nominal/contract interest rate minus
expected inflation. It reflects the true cost of borrowing after accounting for
inflation's erosion of purchasing power.
4. In an Adjustable Rate Mortgage (ARM), the "pay rate" is defined as:
A. The interest rate used to calculate the loan payment due
B. The interest rate used to calculate interest accrual
C. The interest rate after adding the margin
D. The rate floor
Answer: A
Rationale: The pay rate is the true monthly payment made by a borrower against
the loan. The accrual rate is the interest rate used to calculate the interest accrued
on the loan balance. When the pay rate is less than the accrual rate, the loan is
negatively amortizing.
5. A Construction Loan typically differs from a Permanent Mortgage in which of
the following ways?
A. It is fully amortizing from the start
B. It has interest-only payments during construction with a balloon payment at
completion
C. It has lower interest rates than permanent financing
D. It is always non-recourse
Answer: B
,Rationale: Construction loans are short-term financing used to fund the building
process. They typically disburse funds in draws, require interest-only payments
during construction (with interest capitalized into the outstanding loan balance),
and mature when construction is complete. The borrower then obtains permanent
(take-out) financing to repay the construction loan.
6. What is the primary advantage of a 30-year fully amortizing constant-payment
mortgage for a homebuyer?
A. It requires a large balloon payment at the end of the term
B. The interest portion of the payment increases over time
C. The monthly payment stays constant, making budgeting predictable
D. The principal is paid off only at maturity
Answer: C
Rationale: In a fully amortizing loan, the monthly payment remains the same
throughout the term; each payment reduces principal until the balance reaches
zero.
7. In a fully amortizing constant-payment loan, which of the following correctly
describes the trend of each component over the loan's life?
A. Monthly payment – increasing; interest – increasing; amortization – decreasing
B. Monthly payment – constant; interest – decreasing; amortization – increasing
C. Monthly payment – constant; interest – increasing; amortization – decreasing
D. Monthly payment – decreasing; interest – decreasing; amortization – increasing
Answer: B
Rationale: The monthly payment remains constant in a fully amortizing loan.
However, the interest portion decreases over time as the principal balance declines,
while the amortization (principal) portion increases.
8. A borrower has a $1,000,000 mortgage loan with a 5% contract rate. If the
lender charges 2 points, what is the approximate effective yield to the lender if the
loan is held to maturity?
A. 5.00%
B. 5.25%
, C. 5.50%
D. 6.00%
Answer: B
Rationale: Each point typically increases the effective yield by approximately
0.125% to 0.25% if the loan is held to maturity. Two points would increase the
effective yield by approximately 0.25% to 0.50%, making 5.25% the most
reasonable estimate.
9. What is the formula for calculating the monthly payment on a fully amortizing
mortgage?
A. PMT = PV × [r(1 + r)ⁿ] / [(1 + r)ⁿ − 1]
B. PMT = PV × r × n
C. PMT = PV / n
D. PMT = PV × (1 + r)ⁿ
Answer: A
Rationale: The standard mortgage payment formula is PMT = PV × [r(1 + r)ⁿ] / [(1
+ r)ⁿ − 1], where PV is the loan amount, r is the monthly interest rate, and n is the
total number of payments.
10. A borrower has a $2,880,000 fixed rate loan that is fully amortizing over 20
years with equal monthly payments at a 6.25% annual interest rate. If the lender
charges 1.5% as an origination fee, $288 for a credit report, and $3,080 for an
appraisal fee, and the loan is repaid after ten years, what is the effective yield to the
lender?
A. 6.49%
B. 6.51%
C. 6.46%
D. 6.25%
Answer: B
Rationale: The effective yield is higher than the stated rate because the lender
charges upfront fees. The calculation involves computing the monthly payment,
MGMT170 -EXAM 300 ACTUAL QUESTIONS AND CORRECT
ANSWERS WITH RATIONALE LATEST UPDATE ALREADY
GRADED A+ ASSURED PASS
Section 1: Mortgage Finance and Loan Structure (1–40)
1. A fixed-rate, fully amortizing mortgage loan of $1,000,000 is written for 30
years at a 6% annual interest rate with monthly payments. What is the monthly
payment?
A. $5,000.00
B. $5,995.51
C. $6,002.48
D. $6,090.00
Answer: B
Rationale: Using the mortgage payment formula: PMT = PV × [r(1 + r)ⁿ] / [(1 + r)ⁿ
− 1]. PV = $1,000,000, monthly r = 0.06/12 = 0.005, n = 360. The PMT is
approximately $5,995.51.
2. A borrower takes out a $500,000 mortgage with a 2-point origination fee. How
much does the borrower pay in points?
A. $5,000
B. $10,000
C. $15,000
D. $20,000
Answer: B
Rationale: A point equals 1% of the loan amount. 2 points = 2% × $500,000 =
$10,000. Loan fees and points increase the lender's effective yield.
,3. The difference between the nominal/contract interest rate and the expected
inflation rate is the:
A. Accrual rate
B. Effective annual interest rate
C. Real interest rate
D. Pay rate
Answer: C
Rationale: The real interest rate is the nominal/contract interest rate minus
expected inflation. It reflects the true cost of borrowing after accounting for
inflation's erosion of purchasing power.
4. In an Adjustable Rate Mortgage (ARM), the "pay rate" is defined as:
A. The interest rate used to calculate the loan payment due
B. The interest rate used to calculate interest accrual
C. The interest rate after adding the margin
D. The rate floor
Answer: A
Rationale: The pay rate is the true monthly payment made by a borrower against
the loan. The accrual rate is the interest rate used to calculate the interest accrued
on the loan balance. When the pay rate is less than the accrual rate, the loan is
negatively amortizing.
5. A Construction Loan typically differs from a Permanent Mortgage in which of
the following ways?
A. It is fully amortizing from the start
B. It has interest-only payments during construction with a balloon payment at
completion
C. It has lower interest rates than permanent financing
D. It is always non-recourse
Answer: B
,Rationale: Construction loans are short-term financing used to fund the building
process. They typically disburse funds in draws, require interest-only payments
during construction (with interest capitalized into the outstanding loan balance),
and mature when construction is complete. The borrower then obtains permanent
(take-out) financing to repay the construction loan.
6. What is the primary advantage of a 30-year fully amortizing constant-payment
mortgage for a homebuyer?
A. It requires a large balloon payment at the end of the term
B. The interest portion of the payment increases over time
C. The monthly payment stays constant, making budgeting predictable
D. The principal is paid off only at maturity
Answer: C
Rationale: In a fully amortizing loan, the monthly payment remains the same
throughout the term; each payment reduces principal until the balance reaches
zero.
7. In a fully amortizing constant-payment loan, which of the following correctly
describes the trend of each component over the loan's life?
A. Monthly payment – increasing; interest – increasing; amortization – decreasing
B. Monthly payment – constant; interest – decreasing; amortization – increasing
C. Monthly payment – constant; interest – increasing; amortization – decreasing
D. Monthly payment – decreasing; interest – decreasing; amortization – increasing
Answer: B
Rationale: The monthly payment remains constant in a fully amortizing loan.
However, the interest portion decreases over time as the principal balance declines,
while the amortization (principal) portion increases.
8. A borrower has a $1,000,000 mortgage loan with a 5% contract rate. If the
lender charges 2 points, what is the approximate effective yield to the lender if the
loan is held to maturity?
A. 5.00%
B. 5.25%
, C. 5.50%
D. 6.00%
Answer: B
Rationale: Each point typically increases the effective yield by approximately
0.125% to 0.25% if the loan is held to maturity. Two points would increase the
effective yield by approximately 0.25% to 0.50%, making 5.25% the most
reasonable estimate.
9. What is the formula for calculating the monthly payment on a fully amortizing
mortgage?
A. PMT = PV × [r(1 + r)ⁿ] / [(1 + r)ⁿ − 1]
B. PMT = PV × r × n
C. PMT = PV / n
D. PMT = PV × (1 + r)ⁿ
Answer: A
Rationale: The standard mortgage payment formula is PMT = PV × [r(1 + r)ⁿ] / [(1
+ r)ⁿ − 1], where PV is the loan amount, r is the monthly interest rate, and n is the
total number of payments.
10. A borrower has a $2,880,000 fixed rate loan that is fully amortizing over 20
years with equal monthly payments at a 6.25% annual interest rate. If the lender
charges 1.5% as an origination fee, $288 for a credit report, and $3,080 for an
appraisal fee, and the loan is repaid after ten years, what is the effective yield to the
lender?
A. 6.49%
B. 6.51%
C. 6.46%
D. 6.25%
Answer: B
Rationale: The effective yield is higher than the stated rate because the lender
charges upfront fees. The calculation involves computing the monthly payment,
