The average time it takes for a mortgage in a pool to be paid off is referred to as which one of the following?

16.    The average time it takes for a mortgage in a pool to be paid off is referred to as which one of the following?

 

A.     average amortized period

B.     seasoned period

C.     maturity life

D.     average life

E.     normal pool life

Answer

average life

 

17.    Which one of the following is the measure of interest rate risk for fixed-income securities?

 

A.     standard deviation

B.     Macaulay duration

C.     variance

D.     Jensen's alpha

E.     beta

Answer

Macaulay duration

 

18.    The _____ duration for mortgage-backed securities is the duration measure that accounts for how mortgage prepayments are affected by changes in interest rates.

 

A.     mean

B.     modified

C.     average

D.     effective

E.     adjusted

Answer

effective

 

19.    What are the securities which are created by splitting the cash flows from mortgage pools according to specific allocation rules called?

 

A.     collateralized mortgage obligations

B.     collateralized housing bonds

C.     mortgage amortized strips

D.     pooled mortgage obligations

E.     secured mortgage strips

 

20.    Interest-only strips are securities that do which one of the following?

 

A.     pay interest only at maturity

B.     pay only the interest cash flows to investors

C.     pay interest over the life of the security and the entire principal at maturity

D.     pay interest only when requested by the holder with all remaining amounts paid at maturity

E.     pay interest monthly and principal quarterly

 

21.    Which one of the following is a security that only pays the principal cash flows to investors?

 

A.     split strip

B.     interest-only strip

C.     amortized strip

D.     principal-only strip

E.     final strip

 

22.    What are the securities that are created when a mortgage pool is divided into a number of tranches called?

 

A.     split strips

B.     divided CMOs

C.     sequential CMOs

D.     indexed mortgage splits

E.     tranche pools

 

23.    Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

 

A.     priority strip bond

B.     principal strip

C.     amortized principal strip

D.     protected amortization class bond

E.     principal priority tranche

 

24.    A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

 

A.     subsidiary

B.     sequential

C.     PAC support

D.     secondary

E.     subordinate

 

25.    Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

 

A.     PAC collar

B.     PAC range

C.     PAC space

D.     PAC cup

E.     PAC field

 

26.    Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

 

A.     payment yield

B.     assumed yield

C.     current yield

D.     cash flow yield

E.     amortized yield

 

27.    Which one of the following correctly applies to a mortgage passthrough bond?

 

A.     The primary collateral for the bond is the underlying pool of mortgages.

B.     All interest received is immediately passed through while principal payments are held until the bond matures.

C.     Each bond represents one home mortgage.

D.     These bonds are created via a process known as mortgage collaring.

E.     All of these bonds are guaranteed by the full faith and credit of the U.S. government.

 

28.    You own a mortgage passthrough. Which one of the following statements correctly describes the payments you will receive on that security?

 

A.     The payments will decrease at a constant rate over the life of the security.

B.     The payments will increase at a decreasing rate over the life of the security.

C.     The payments will be fixed for the life of the security.

D.     The payments will vary depending upon the amount paid on the underlying mortgages each period.

E.     The payments will decrease based on the interest shown on the amortization schedule.

 

29.    Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

 

A.     10-year, 5.5 percent

B.     10-year, 6.0 percent

C.     15-year, 5.5 percent

D.     15-year, 6.0 percent

E.     30-year, 5.5 percent

 

30.    Which one of the following set of mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule?

 

A.     10-year, 6.5 percent

B.     10-year, 7.0 percent

C.     15-year, 7.0 percent

D.     30-year, 6.5 percent

E.     30-year, 7.0 percent

                                        

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