TEST BANK
FSU REE4204 Exam 3 Sirmans
Exam Questions and ANSWERS
WITH DETAILED RATIONALES
GRADED A+ GUARANTEED PASS
ACE YOUR EXAM
You need a 30-year FRM and have two choices. Option one is 6.50% contract rate with 2.50 discount
points and an APR of 6.75%. Option two is 6.75% contract rate with no discount points. Neither loan has
any other financing fees. If you plan to hold the loan for five years, which is the better option to minimize
your effective borrowing costs?
a. 6.50% with 2.50 points
b. 6.75% with no points
c. doesn't matter, the effective cost is the same
d. can't determine without knowing the loan amount - ANS :b. 6.75% with no points
Lenders are offering different financing options on 30-year FRMs. One lender offers a contract rate of 6%
with one discount point while another lender offers a 6% contract rate with two discount points. Since
both loans are discounted, which is the better option for the borrower based on the APR? Other factors
are held constant and the borrower wants to minimize his/her borrowing cost.
a. 6% with one point
b. 6% with two points
, TEST BANK
c. can't determine without the loan amount
d. discounting doesn't matter, the APRs will be the same since the contract rates are the same - ANS :
You have just taken a $110,000 FRM at 8% for 30 years, monthly payments. You
know that your APR is 8.214% but you cannot remember how many discount points you paid. If you had
$550 in financing fees other than discount points, the points you paid were:
$2,200 or 2 points
$2,245 or 2.04 points
$1,650 or 1.50 points
$1,695 or 1.54 points
none of the above - ANS :$1,650 or 1.50 points
A lender offers you a fixed-rate mortgage for $145,000 at 6% for 30 years, monthly payments, with 2.625
discount points. What is the APR for this loan?
a. 6.17%
b. 9.75%
c. 6.25%
d. 8.625%
e. none of the above - ANS :c. 6.25%
A lender offers you a fixed-rate mortgage for $145,000 at 6.25% for 30 years,
monthly payments, with 0.75 discount points. If you repay the loan balance at the end of year four, what
is the effective cost of the loan?
a. 6.32%
b. 6.47%
, TEST BANK
c. 7.00%
d. 6.25%
e. none of the above - ANS :b. 6.47%
You need a 30-year fixed-rate mortgage for $100,000, monthly payments. One
lender offers 7.5% with no discount points while another lender offers 7.125% with some points. What
amount of points on the second loan would give the loans the same APR?
a. no points necessary - the 30-year amortization will force the APRs to be equal
b. 3.65 points
c. 3.75 points
d. with different contracts rates these loans cann ot have the same APR - ANS :b. 3.65 points
A 30-year fixed-rate mortgage has a contract rate of 7.00% with one point. A 15-
year fixed-rate mortgage has a contract rate of 6.25%. If both loans have a 15-year holding period, what
amount of points on the 15-year loan will equalize the effective costs of these loans over their holding
periods? Assume a loan amount of
$80,000.
a. the effective costs cannot be equal because of the different loan amortizations
b. 5.20 points
c. 5.31 points
d. 5.56 points
e. none of the above - ANS :c. 5.31 points
. You wish to purchase real property. The lender will give you a $145,000 fixed-rate, thirty-year mortgage
at 7.50%, three discount points, monthly payments. Suppose that, before you make any payments, you
receive a pay raise so you pay an extra $100 per month with your normal payment. How many payments
are required to fully amortize the loan assuming the extra $100 is paid each month?
, TEST BANK
a. 360
b. 269.63
c. 209.63
d. 130.18
e. none of the above - ANS :b. 269.63
A lender gives you a $125,000 thirty-year fixed-rate mortgage at 6.75%, three
discount points, monthly payments. Suppose that, before you make any payments, you receive a pay raise
so you pay an extra $100 per month in addition to your normal payment. Also, at the end of year five of
the mortgage you have an unexpected job transfer thus the house is sold and the mortgage is repaid. The
mortgage balance at the end of year five with the extra $1 00 per month payment is $110,231. What is
the effective cost of the loan for the five-year holding period?
a. 7.45%
b. 7.93%
c. 5.74%
d. 7.51%
e. none of the above - ANS :d. 7.51%
You take a fixed-rate mortgage for $120,000 at 6.25% for 30 years, monthly
payments. At the end of the second year, you unexpectedly inherit $16,000 from your now-favorite aunt.
You decide to apply this $16,000 to the principal balance of your loan. What is the balance of the
mortgage at the end of year two
after the extra payment?
a. $103,772
b. $117,097
c. $86,095
FSU REE4204 Exam 3 Sirmans
Exam Questions and ANSWERS
WITH DETAILED RATIONALES
GRADED A+ GUARANTEED PASS
ACE YOUR EXAM
You need a 30-year FRM and have two choices. Option one is 6.50% contract rate with 2.50 discount
points and an APR of 6.75%. Option two is 6.75% contract rate with no discount points. Neither loan has
any other financing fees. If you plan to hold the loan for five years, which is the better option to minimize
your effective borrowing costs?
a. 6.50% with 2.50 points
b. 6.75% with no points
c. doesn't matter, the effective cost is the same
d. can't determine without knowing the loan amount - ANS :b. 6.75% with no points
Lenders are offering different financing options on 30-year FRMs. One lender offers a contract rate of 6%
with one discount point while another lender offers a 6% contract rate with two discount points. Since
both loans are discounted, which is the better option for the borrower based on the APR? Other factors
are held constant and the borrower wants to minimize his/her borrowing cost.
a. 6% with one point
b. 6% with two points
, TEST BANK
c. can't determine without the loan amount
d. discounting doesn't matter, the APRs will be the same since the contract rates are the same - ANS :
You have just taken a $110,000 FRM at 8% for 30 years, monthly payments. You
know that your APR is 8.214% but you cannot remember how many discount points you paid. If you had
$550 in financing fees other than discount points, the points you paid were:
$2,200 or 2 points
$2,245 or 2.04 points
$1,650 or 1.50 points
$1,695 or 1.54 points
none of the above - ANS :$1,650 or 1.50 points
A lender offers you a fixed-rate mortgage for $145,000 at 6% for 30 years, monthly payments, with 2.625
discount points. What is the APR for this loan?
a. 6.17%
b. 9.75%
c. 6.25%
d. 8.625%
e. none of the above - ANS :c. 6.25%
A lender offers you a fixed-rate mortgage for $145,000 at 6.25% for 30 years,
monthly payments, with 0.75 discount points. If you repay the loan balance at the end of year four, what
is the effective cost of the loan?
a. 6.32%
b. 6.47%
, TEST BANK
c. 7.00%
d. 6.25%
e. none of the above - ANS :b. 6.47%
You need a 30-year fixed-rate mortgage for $100,000, monthly payments. One
lender offers 7.5% with no discount points while another lender offers 7.125% with some points. What
amount of points on the second loan would give the loans the same APR?
a. no points necessary - the 30-year amortization will force the APRs to be equal
b. 3.65 points
c. 3.75 points
d. with different contracts rates these loans cann ot have the same APR - ANS :b. 3.65 points
A 30-year fixed-rate mortgage has a contract rate of 7.00% with one point. A 15-
year fixed-rate mortgage has a contract rate of 6.25%. If both loans have a 15-year holding period, what
amount of points on the 15-year loan will equalize the effective costs of these loans over their holding
periods? Assume a loan amount of
$80,000.
a. the effective costs cannot be equal because of the different loan amortizations
b. 5.20 points
c. 5.31 points
d. 5.56 points
e. none of the above - ANS :c. 5.31 points
. You wish to purchase real property. The lender will give you a $145,000 fixed-rate, thirty-year mortgage
at 7.50%, three discount points, monthly payments. Suppose that, before you make any payments, you
receive a pay raise so you pay an extra $100 per month with your normal payment. How many payments
are required to fully amortize the loan assuming the extra $100 is paid each month?
, TEST BANK
a. 360
b. 269.63
c. 209.63
d. 130.18
e. none of the above - ANS :b. 269.63
A lender gives you a $125,000 thirty-year fixed-rate mortgage at 6.75%, three
discount points, monthly payments. Suppose that, before you make any payments, you receive a pay raise
so you pay an extra $100 per month in addition to your normal payment. Also, at the end of year five of
the mortgage you have an unexpected job transfer thus the house is sold and the mortgage is repaid. The
mortgage balance at the end of year five with the extra $1 00 per month payment is $110,231. What is
the effective cost of the loan for the five-year holding period?
a. 7.45%
b. 7.93%
c. 5.74%
d. 7.51%
e. none of the above - ANS :d. 7.51%
You take a fixed-rate mortgage for $120,000 at 6.25% for 30 years, monthly
payments. At the end of the second year, you unexpectedly inherit $16,000 from your now-favorite aunt.
You decide to apply this $16,000 to the principal balance of your loan. What is the balance of the
mortgage at the end of year two
after the extra payment?
a. $103,772
b. $117,097
c. $86,095
