Question

17.

When interest rates fall, a fixed interest rate mortgage lender will experience the following except

Select one:

a. the value of fixed mortgages will increase as a result of the fall in interest rate.

b. the value of the fixed mortgages will decline as a result of the fall in interest rate.

c. the mortgages may be repaid earlier and the lender may have to reinvest the proceeds at a much lower rare.

d. a negative cash flow may result if long-term mortgages are funded with short-term deposits.

18.

Mortgages are

Select one:

a. loans made to individuals or businesses secured by real estate.

b. securities backed by financial assets.

c. bonds issued by corporations and government.

d. long-term loans to finance business operations.

19.

Mortgages are ____ to the issuer (borrower) and ____ to the holder (lender).

Select one:

a. assets, liabilities

b. collateral, investment

c. investment, collateral

d. liabilities, assets

20.

____ risk is the risk that interest rates rise and the value of long term mortgages decline.

Select one:

a. Interest rate

b. None of the above

c. Default

d. Prepayment

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Please answer ALL correctly!

I will THUMB UP :)

Answer 1

17.

ANS is b. the value of the fixed mortgages will decline as a result of the fall in interest rate.

Interest rate and the value of mortgage are inversely proportional. Hence if the interest rate deccline the value of mortgage will increase.

18

ANS is a. loans made to individuals or businesses secured by real estate.

Mortgages are generally long term loans made by the lenders ( individuals or business) against security ie real estate . If the borrower fails to pay the loan amount the same is recovered from selling the collateral kept.

19.

The ANS is d. liabilities, assets

The mortagages are laons made by the lenders to the borrower against collateral of property. Hence it is an asset to lender and liability to borrower.

20.

The ANS is a. Interest rate

Interest rate risk is the risk that the falling interest rates will lead to increase in value of the bond/ loan/ mortgages etc. Value and interest rate are inversely related.