Question 1

A call option on a mortgage is:

Accepted Answer

A)  the homeowner's right to prepay the current balance prior to its maturity 
B)  the lender's right to foreclose in the event of default 
C)  the homeowner's right to take a second mortgage out on the equity in the home 
D)  the lender's right to resell the mortgage to another lender 
A)  the homeowner's right to prepay the current balance prior to its maturity 
B)  the lender's right to foreclose in the event of default 
C)  the homeowner's right to take a second mortgage out on the equity in the home 
D)  the lender's right to resell the mortgage to another lender A

Question 2

Monitoring costs do NOT include:

Accepted Answer

A)  auditing the books 
B)  inspecting the property 
C)  paying property taxes 
D)  checking on the operations of the manager 
A)  auditing the books 
B)  inspecting the property 
C)  paying property taxes 
D)  checking on the operations of the manager C

Question 3

Portfolio construction allows for a reduction in risk of the portfolio over individual assets:

Accepted Answer

A)  at a significant reduction in expected return 
B)  without a change in expected returns 
C)  with additional cost 
D)  with a reduction in cost 
A)  at a significant reduction in expected return 
B)  without a change in expected returns 
C)  with additional cost 
D)  with a reduction in cost B

Question 4

Agency costs include:

Accepted Answer

A)  agent costs,bonding costs,and monitoring costs 
B)  monitoring costs,bonding costs,and structuring costs 
C)  bonding costs,structuring costs,and agent costs 
D)  monitoring costs,agent costs,and structuring costs 
A)  agent costs,bonding costs,and monitoring costs 
B)  monitoring costs,bonding costs,and structuring costs 
C)  bonding costs,structuring costs,and agent costs 
D)  monitoring costs,agent costs,and structuring costs

Question 5

Conditions that do NOT lead to market efficiency include:

Accepted Answer

A)  uniform and widespread information 
B)  no transaction costs 
C)  market restrictions 
D)  a large number of buyers and sellers 
A)  uniform and widespread information 
B)  no transaction costs 
C)  market restrictions 
D)  a large number of buyers and sellers

Question 6

Interest rate risk for thrifts occurs partially because they:

Accepted Answer

A)  issue short-term deposits 
B)  issue long-term notes 
C)  invest in long-term variable rate mortgages 
D)  invest in short-term mortgages 
A)  issue short-term deposits 
B)  issue long-term notes 
C)  invest in long-term variable rate mortgages 
D)  invest in short-term mortgages

Question 7

If the current market price of a share of stock is $47 and the intrinsic value is $3,what is the strike price?

Accepted Answer

A)  $3 
B)  $50 
C)  $44 
D)  $47 
A)  $3 
B)  $50 
C)  $44 
D)  $47

Question 8

Weak-form market efficiency exists:

Accepted Answer

A)  when the price of the asset reflects past price behavior and public information 
B)  when the current price reflects all information including inside information 
C)  when the price of the asset completely reflects its historical price behavior 
D)  when the price of an asset is completely speculative (no information available) 
A)  when the price of the asset reflects past price behavior and public information 
B)  when the current price reflects all information including inside information 
C)  when the price of the asset completely reflects its historical price behavior 
D)  when the price of an asset is completely speculative (no information available)

Question 9

Options have intrinsic and market values:

Accepted Answer

A)  market value is generally less than intrinsic value 
B)  intrinsic value is excess of the current price over the strike price for a call 
C)  intrinsic value is excess of the current price over the strike price for a put 
D)  market values and intrinsic values are the same 
A)  market value is generally less than intrinsic value 
B)  intrinsic value is excess of the current price over the strike price for a call 
C)  intrinsic value is excess of the current price over the strike price for a put 
D)  market values and intrinsic values are the same

Question 10

The discounted cash flow (DCF)model of valuation does NOT contain:

Accepted Answer

A)  present value 
B)  internal rate of return 
C)  the discount rate 
D)  amount of the cash flows 
A)  present value 
B)  internal rate of return 
C)  the discount rate 
D)  amount of the cash flows

Question 11

Debt is given preference over equity to receive payments because:

Accepted Answer

A)  debt returns a higher payment 
B)  equity fluctuates with the market 
C)  debt has legal obligations 
D)  there is no preference 
A)  debt returns a higher payment 
B)  equity fluctuates with the market 
C)  debt has legal obligations 
D)  there is no preference

Question 12

The value of mortgage-backed securities changes as a result which most important factor?

Accepted Answer

A)  the maturity date for the security 
B)  the Dow Jones Industrial Average Index 
C)  volatility in the interest rates 
D)  the change in market interest rates 
A)  the maturity date for the security 
B)  the Dow Jones Industrial Average Index 
C)  volatility in the interest rates 
D)  the change in market interest rates

Question 13

Servicing rights occur when an originator of a portfolio of mortgages sells that portfolio to an investor.

Accepted Answer

A)  a reasonable fee for the originator would be 7% 
B)  the originator continues to collect the monthly payments and delinquent payments 
C)  the investor is responsible for sending out delinquent notices 
D)  the investor collects all delinquent payments and penalty payments 
A)  a reasonable fee for the originator would be 7% 
B)  the originator continues to collect the monthly payments and delinquent payments 
C)  the investor is responsible for sending out delinquent notices 
D)  the investor collects all delinquent payments and penalty payments

Question 14

An agent is:

Accepted Answer

A)  someone retained by a principal to conduct activities for the principal's benefit 
B)  someone retained by another to represent them in all legal matters 
C)  someone retained by a principal authorized to sign any legal documents 
D)  someone retained by another to ensure legal protocol is followed 
A)  someone retained by a principal to conduct activities for the principal's benefit 
B)  someone retained by another to represent them in all legal matters 
C)  someone retained by a principal authorized to sign any legal documents 
D)  someone retained by another to ensure legal protocol is followed

Question 15

For commercial property,a larger down payment is often required; this:

Accepted Answer

A)  increases the value of the put option 
B)  increases the value of the call option 
C)  reduces the value of the call option 
D)  reduces the value of the put option 
A)  increases the value of the put option 
B)  increases the value of the call option 
C)  reduces the value of the call option 
D)  reduces the value of the put option

Question 16

Cash flows associated with servicing rights:

Accepted Answer

A)  have little risk since the servicing fees are related to all payments 
B)  are not affected by market rates 
C)  have value and can be sold 
D)  are composed of the fees less the discount rate 
A)  have little risk since the servicing fees are related to all payments 
B)  are not affected by market rates 
C)  have value and can be sold 
D)  are composed of the fees less the discount rate

Question 17

Pass-through Mortgage Backed Securities (MBSs)provide the investor with:

Accepted Answer

A)  less prepayment risk as the originator of a specific mortgage 
B)  a prorated share of all monthly principal and interest payments 
C)  no risk from prepayments of loans 
D)  a weighted average of the monthly principal but not interest payments 
A)  less prepayment risk as the originator of a specific mortgage 
B)  a prorated share of all monthly principal and interest payments 
C)  no risk from prepayments of loans 
D)  a weighted average of the monthly principal but not interest payments

Question 18

Financial intermediaries:

Accepted Answer

A)  lend credit to create assets for itself 
B)  purchase Treasury securities 
C)  purchase corporate bonds 
D)  lend credit to suppliers to create deposit. 
A)  lend credit to create assets for itself 
B)  purchase Treasury securities 
C)  purchase corporate bonds 
D)  lend credit to suppliers to create deposit.

Question 19

A call option is:

Accepted Answer

A)  the obligation to purchase an asset at the strike price before the exercise date 
B)  the right to sell an asset at the purchase price before the exercise date 
C)  the right to purchase an asset at the strike price on or before the exercise date 
D)  the obligation to sell an asset at the strike price before the exercise date 
A)  the obligation to purchase an asset at the strike price before the exercise date 
B)  the right to sell an asset at the purchase price before the exercise date 
C)  the right to purchase an asset at the strike price on or before the exercise date 
D)  the obligation to sell an asset at the strike price before the exercise date

Question 20

Liquidity risk:

Accepted Answer

A)  is high for investments in real property 
B)  is related to how quickly an asset can be converted to cash without loss of volume 
C)  can be avoided by a bank obtaining insurance such as with the Federal Deposit Insurance Corporation 
D)  is low for checking accounts 
A)  is high for investments in real property 
B)  is related to how quickly an asset can be converted to cash without loss of volume 
C)  can be avoided by a bank obtaining insurance such as with the Federal Deposit Insurance Corporation 
D)  is low for checking accounts

Exam 3: Finance Theory and Real Estate

A call option on a mortgage is:

Monitoring costs do NOT include:

Portfolio construction allows for a reduction in risk of the portfolio over individual assets:

Agency costs include:

Conditions that do NOT lead to market efficiency include:

Interest rate risk for thrifts occurs partially because they:

If the current market price of a share of stock is $47 and the intrinsic value is $3,what is the strike price?

Weak-form market efficiency exists:

Options have intrinsic and market values:

The discounted cash flow (DCF)model of valuation does NOT contain:

Debt is given preference over equity to receive payments because:

The value of mortgage-backed securities changes as a result which most important factor?

Servicing rights occur when an originator of a portfolio of mortgages sells that portfolio to an investor.

An agent is:

For commercial property,a larger down payment is often required; this:

Cash flows associated with servicing rights:

Pass-through Mortgage Backed Securities (MBSs)provide the investor with:

Financial intermediaries:

A call option is:

Liquidity risk:

Finance and Real Estate

Money Credit and the Determination of Interest Rates

The Early History of Residential Finance and Creation of the Fixed Rate Mortgage

Modern Residential Finance

Alternative Mortgage Instruments

Financing and Property Values

Federal Housing Policies: Part 1

Federal Housing Policies: Part 2

The Secondary Mortgage Market

Valuation of Mortgage Securities

Controlling Default Risk Through Borrower Qualification Loan Underwriting and Contractual Relationships

Loan Origination, Processing, and Closing

Mortgage Default Insurance, Foreclosure, Title Insurance

Value, Leverage, and Capital Structure

Federal Taxation and Real Estate Finance

Sources of Funds for Commercial Real Estate Properties

Acquisition, Development, and Construction Financing

Permanent Financing of Commercial Real Estate Properties

Ownership Structures for Financing and Holding Real Estate

Real Estate in a Portfolio Context

Liability, Agency Problems, Fraud, and Ethics in Real Estate Finance

Filters