Question

1. The difference between the value of a mortgage pool as individual mortgages and as a pool of CMBSs is known as the:

		split
		tranche
		par value
		arb
		None of the above

2. A _____ return for the property than the cost of the mortgage results in “negative leverage.

		lower
		greater
		equal
		none of the above

3. A plot between the Expected Total Return and the Leverage Ratio results in the:

		Internal Rate of Return Profile
		Net Present Value Profile
		Capital Market Line
		Debt Coverage Profile
		None of the above

Answer 1

Answers-

Q 1)

The correct Option is tranche.
The tranche is the mortgage pool as individual mortgages which forms a pool of CMBSs.

The other Options are incorrect.
Par value refers to the face value of a bond
arb is a  innovative real estate investment regulated by the authorities of Luxembourg Fund financial markets

Q 2)

The correct Option in lower.

When the cost of the borrowed money through mortgage is greater than the return from property then it leads to negative leverage or the return on property is lower than the cost of borrowed money (negative leverage).

Q 3)

The correct Option is Capital Market Line (CML)

Capital Market Line - The Expeced return on Y-axis and Standard deviation or Risk on X -axis, Standard deviation is measure of risk which is a function of leverage.

Internal Rate of Return Profile - Present Value(PV) of cash flows on Y-axis and Discount rate on X -axis

NPV Profile - Graph with NPV on Y-axis and Cost of capital or Discount rate on X-axis

Debt coverage ratio also debt service coverage ratio = EBIT or Operating profit / ( Inerest + Principal)