Question

In: Finance

For borrowers, the SAM is a hedge against the possibility that the price of the borrower's...

For borrowers, the SAM is a hedge against the possibility that the price of the borrower's house will not rise above general house prices.

Pension funds interest in real estate investments has been long-standing.

If interest rates are expected to rise in the future the value of an ARM will fall relative to the fixed rate loan (FRM).

FHA funds and insures loans.

TRUE or FALSE. Thank you so much.

Solutions

Expert Solution

  1. For borrowers, the SAM is a hedge against the possibility that the price of the borrower's house will not rise above general house prices. - TRUE, since if price does not rise there is not much appreciation to be shared with lender and advantage is SAM offers lower interest rate

  2. Pension funds interest in real estate investments has been long-standing. - FALSE, though they have started now, they typically investedin stocks and bonds

  3. If interest rates are expected to rise in the future the value of an ARM will fall relative to the fixed rate loan (FRM). - TRUE, with rising interest rates people would prefer to lock-in fixed rate loans

  4. FHA funds and insures loans. - FALSE, it provides insurance for loans which are funded by FHA-approved lender

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

What is the definition of a hedge? If Asset X is to be a hedge against...
What is the definition of a hedge? If Asset X is to be a hedge against a bad outcome Y (such as inflation), then the correlation between return on asset X and the bad outcome Y a. Should be as high as possible (ideally 1) b. Should be as low as possible (ideally -1) c. Should be zero d. Does not matter You are considering an investment in a mutual fund that has historically outperformed the rate of inflation by,...
What are some ways that financiers hedge against commodity price risk? explain it with an in-depth...
What are some ways that financiers hedge against commodity price risk? explain it with an in-depth example.
What is cross hedging? Why does it reduce a bank’s ability to perfectly hedge against price...
What is cross hedging? Why does it reduce a bank’s ability to perfectly hedge against price risk?
Question 4 Financial Derivatives (10 marks) 4.1To construct a hedge against price risk, futures contracts are...
Question 4 Financial Derivatives 4.1To construct a hedge against price risk, futures contracts are better than forward contracts. Explain THREE reasons? 4.2 Explain the following: a. A firm’s cash flows are risky for various reasons. Explain THREE sources of risk or volatility in firm cash flows. b. How does a call option differ from a put option? (1 mark) 4.3 Currently, a call option on Minelli Enterprises Limited’s ordinary share is selling for $1.20 (option premium). The exercise price is...
Question 4 Financial Derivatives (10 marks) 4.1To construct a hedge against price risk, futures contracts are...
Question 4 Financial Derivatives 4.1To construct a hedge against price risk, futures contracts are better than forward contracts. Explain THREE reasons? 4.2 Explain the following: a. A firm’s cash flows are risky for various reasons. Explain THREE sources of risk or volatility in firm cash flows. b. How does a call option differ from a put option? (1 mark) 4.3 Currently, a call option on Minelli Enterprises Limited’s ordinary share is selling for $1.20 (option premium). The exercise price is...
Insurance is a hedge against catastrophic loss and a means to balance risk with reward. The...
Insurance is a hedge against catastrophic loss and a means to balance risk with reward. The bank will require you hold homeowners insurance on any property that is mortgaged (with them as the lien holder). The reason is that the bank wants to protect their investment (the loan they gave you) which is collateralized with your home. In the event of a loss the insurance would pay the bank first to release the balance of the lien and you second...
Section 3.6: Contrasting Hedge Funds Against Money Market Funds Explain how hedge funds differ from money...
Section 3.6: Contrasting Hedge Funds Against Money Market Funds Explain how hedge funds differ from money market funds.
The eurocurrency market can be used effectively to hedge against the anticipated appreciation and depreciation of...
The eurocurrency market can be used effectively to hedge against the anticipated appreciation and depreciation of a currency (hint. Consider an example). Describe these processes - for appreciation & depreciation briefly. You can use a diagram or simply describe the steps.
1)   An oil refinery company wants to hedge the risk against the rise in the oil...
1)   An oil refinery company wants to hedge the risk against the rise in the oil price for purchase in the December of 2018. Thus, it enters into the oil futures market now. The current futures price of oil for delivery in January 2019 is $48/barrel. In December 2018, the refinery closes out its crude oil futures position when the market futures price of oil for delivery in January 2019 is $56/barrel. The company then purchases the oil at the...
A trader decides to hedge her portfolio against large market moves by taking positions in the...
A trader decides to hedge her portfolio against large market moves by taking positions in the underlying asset and two options (see table below). Delta Gamma Vega Portfolio 0.50 -1000 -500 Option 1 -0.03 10 2.5 Option 2 0.10 80 10 a) How many units of options 1 and 2, respectively, are needed to make the portfolio both gamma and vega neutral? b) How many units of the underlying asset are needed to make the hedged portfolio from part (a)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT