Chapter 13 Random Flashcards
Which of the following elements are considered in determining appropriate rates of interest on loans?
(1) The credit rating of the borrower
(2) The type of property used for security
(3) The amount of administrative attention required on the loan
(4) All of the above
4
Which of the following is characteristic of a mortgage as an investment?
(1) mortgages are not “unique”, which makes them easy to trade
(2) requires a high degree of administrative work
(3) requires a low initial outlay of capital
(4) All of the above are characteristics of a mortgage as an investment.
2
By extending the amortization period of a loan:
(1) the mortgage loan is paid off faster which reduces the amount of interest paid by the borrower.
(2) the size of the required payment will be larger.
(3) the loan contract period becomes longer and the loan will be classified as a fully amortized loan.
(4) the repayment of principal is spread over a greater number of payments, making each payment smaller.
4
Which financial institution is currently the largest single source of institutional mortgage funds in Canada?
(1) Credit unions
(2) Life insurance companies
(3) Trust and loan companies
(4) Chartered banks
4
Which of the following is characteristic of a mortgage as an investment?
(1) illiquid relative to government bonds
(2) requires a high degree of administrative work
(3) requires a high initial outlay of capital
(4) all of the above are characteristic of a mortgage as an investment
4
Which one of the following is the BEST reason for an investor to choose to use debt-financing rather than all cash in order to purchase an income-producing property?
(1) The investor can deduct from taxable income the principal portion of debt repayments, thus lowering taxes payable.
(2) A one-year term on the debt financing required is readily available.
(3) The investor can obtain the debt financing at a lower interest rate than the expected yield on the project.
(4) Property values are expected to decrease
3
Mortgage interest rates are sometimes described as being “sticky”; that is, changes in mortgage rates tend to lag behind changes in bond yields. One reason for this “stickiness” is:
(1) the short-term nature of a mortgage loan contract.
(2) the weak secondary mortgage market.
(3) mortgages are a highly liquid investments.
(4) all mortgage investments are identical.
2
Which of the following is the main reason that interest accruing loans are normally written for short terms?
(1) For long-terms, borrowers generally prefer to make periodic payments.
(2) Total payments decline over the term of an interest accruing loan, so the sooner the loan is refinanced, the higher the potential return to the lender.
(3) The lender’s return and original investment are at risk for the entire term of an interest accruing loan.
(4) The outstanding balance of an interest accruing loan declines over the term of the loan, so it is prudent for the lender to keep the term short
3
From the point of view of the lender, the interest charged on a mortgage does NOT represent:
(1) a payment for a portion of the general overhead and operating costs of the lender.
(2) the cost of financing the lender’s debt.
(3) an incentive to accept uncertainty or risk.
(4) a return on capital invested.
2
Two mortgages requiring level blended payments are identical in all respects except that one has a five-year term and the other has a two-year term. The monthly payments on the five-year term mortgage would be:
(1) higher than those required on the two-year term mortgage.
(2) lower than those required on the two-year term mortgage.
(3) the same as those required on the two-year term mortgage.
(4) Monthly payments cannot be compared with the information presented.
3
Which of the following is a reason why an investor would use borrowed funds instead of an all cash offer for a real estate investment.
(1) lack of adequate capital to make the desired investment
(2) to release equity for home improvements
(3) to reduce overall risk by using only part of the borrower’s total funds for any one investment
(4) all of the above
4
In mortgage financing, a constant payment mortgage is one where:
(1) each payment is identical to the preceding one.
(2) the payments are comprised of a constant amount of principal plus interest due.
(3) the payments decrease in size during the term of the loan.
(4) principal and interest are the same amount for each payment.
1
The secondary mortgage market:
(1) occurs when a borrower receives funds secured by a mortgage from a bank.
(2) is the market in which existing mortgages are bought and sold as financial investments.
(3) has been weakened by the introduction of mortgage-backed securities and Canada mortgage bonds.
(4) is the market in which mortgage loans are initiated.
2
Constant payment repayment schemes developed in response to:
(1) rapid inflation.
(2) the federal government’s desire to stimulate the demand for and supply of housing after World War II.
(3) interest rate risk.
(4) principal risk.
4
Which of the following is NOT characteristic of a mortgage as an investment?
(1) Smaller investors face a mortgage payment reinvestment problem.
(2) Mortgages require a high initial outlay of capital.
(3) Mortgages require a low degree of administrative work.
(4) Mortgages are”unique”, which makes them difficult to trade.
3
