©THEBRIGHTSTARS 2024
REE 4204 Sirmans Exam 1 Questions With
Revised 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. - answer✔✔True
According to the liquidity premium theory, investors are willing to pay a price premium for
securities with shorter maturities. - answer✔✔True
For most investments, cash flow and net profit can be used interchangeably in asset valuation. -
answer✔✔False
Commercial banks are overseen by the Office of Thrift Supervision. - answer✔✔False
Since finance is concerned with the valuation of assets, it must explicitly consider the time value
of money. - answer✔✔True
Real Estate investment Trusts (REITs) specialize in investing in real property and mortgages on
real property. - answer✔✔True
The secondary mortgage market is the market where second (junior) mortgages are created. -
answer✔✔False
Since the nominal interest rate can be observed in the market, a precise measure of future
inflation can be determined. - answer✔✔False
A yield curve shows the yields on bonds over time. - answer✔✔False
In today's mortgage market, due to the short-term nature of mortgages, most real estate financing
takes place in the money markets. - answer✔✔False
The benefit to the investor of the call provision in a callable bond increases as the market interest
rate falls further below the rate offered on the bond. - answer✔✔False
The market segmentation theory suggests that there is more than one market for the same
security. - answer✔✔False
A downward sloping yield curve shows that, at this point in time, long-term rates are higher than
short-term rates. - answer✔✔False
, ©THEBRIGHTSTARS 2024
The price of a bond, besides being determined by the market-required rate, also moves inversely
to this rate. - answer✔✔True
Under the expectations theory, observed rates on current one-year and two-year bonds of 4% and
6%, respectively, indicate that the one-year bond rate one year from now will be between 4% and
6%. - answer✔✔False
8%
Under the expectations theory, an upwards sloping yield curve means that investors expect
market rates to rise in the future. - answer✔✔True
The market segmentation theory by its nature dictates that short term rates must always be less
than long term rates. - answer✔✔False
Default risk is the risk that a bond issuer will be unable to repay the principal and interest on the
debt. - answer✔✔True
The yield observed on a riskless bond in a non-inflationary environment would be the real rate if
interest. - answer✔✔True
A primary market transaction always involves the original issuer of the security. -
answer✔✔True
The term "toxic mortgage debt" in the 2000s referred to mortgages on properties
contaminated by hazardous waste. - answer✔✔False
In using the discounted cash flow model, the valuation of an asset depends on the expected
amount, timing, and risk associated with the project's cash flows. - answer✔✔True
Negative financial leverage occurs when the cost of debt is greater than the equity yield
on the investment. - answer✔✔Quiz = False But I think it's True
The Federal National Mortgage Association was originally established in 1938 for the purpose of
buying FHA mortgages. - answer✔✔True
The falling house prices in the mid-2000s generated greater equity positions for those buyers
who had recently purchased a home. - answer✔✔False
Influence on current U.S. law related to real estate can be traced all the way back to
the Roman empire. - answer✔✔True
REE 4204 Sirmans Exam 1 Questions With
Revised 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. - answer✔✔True
According to the liquidity premium theory, investors are willing to pay a price premium for
securities with shorter maturities. - answer✔✔True
For most investments, cash flow and net profit can be used interchangeably in asset valuation. -
answer✔✔False
Commercial banks are overseen by the Office of Thrift Supervision. - answer✔✔False
Since finance is concerned with the valuation of assets, it must explicitly consider the time value
of money. - answer✔✔True
Real Estate investment Trusts (REITs) specialize in investing in real property and mortgages on
real property. - answer✔✔True
The secondary mortgage market is the market where second (junior) mortgages are created. -
answer✔✔False
Since the nominal interest rate can be observed in the market, a precise measure of future
inflation can be determined. - answer✔✔False
A yield curve shows the yields on bonds over time. - answer✔✔False
In today's mortgage market, due to the short-term nature of mortgages, most real estate financing
takes place in the money markets. - answer✔✔False
The benefit to the investor of the call provision in a callable bond increases as the market interest
rate falls further below the rate offered on the bond. - answer✔✔False
The market segmentation theory suggests that there is more than one market for the same
security. - answer✔✔False
A downward sloping yield curve shows that, at this point in time, long-term rates are higher than
short-term rates. - answer✔✔False
, ©THEBRIGHTSTARS 2024
The price of a bond, besides being determined by the market-required rate, also moves inversely
to this rate. - answer✔✔True
Under the expectations theory, observed rates on current one-year and two-year bonds of 4% and
6%, respectively, indicate that the one-year bond rate one year from now will be between 4% and
6%. - answer✔✔False
8%
Under the expectations theory, an upwards sloping yield curve means that investors expect
market rates to rise in the future. - answer✔✔True
The market segmentation theory by its nature dictates that short term rates must always be less
than long term rates. - answer✔✔False
Default risk is the risk that a bond issuer will be unable to repay the principal and interest on the
debt. - answer✔✔True
The yield observed on a riskless bond in a non-inflationary environment would be the real rate if
interest. - answer✔✔True
A primary market transaction always involves the original issuer of the security. -
answer✔✔True
The term "toxic mortgage debt" in the 2000s referred to mortgages on properties
contaminated by hazardous waste. - answer✔✔False
In using the discounted cash flow model, the valuation of an asset depends on the expected
amount, timing, and risk associated with the project's cash flows. - answer✔✔True
Negative financial leverage occurs when the cost of debt is greater than the equity yield
on the investment. - answer✔✔Quiz = False But I think it's True
The Federal National Mortgage Association was originally established in 1938 for the purpose of
buying FHA mortgages. - answer✔✔True
The falling house prices in the mid-2000s generated greater equity positions for those buyers
who had recently purchased a home. - answer✔✔False
Influence on current U.S. law related to real estate can be traced all the way back to
the Roman empire. - answer✔✔True
