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Ch.15-Test Problems-pg424 - discount rate(opportunity cost...

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Chapter 15: Mortgage Calculations and Decisions Robb Page 16-Mar-2010 FIN 497: Real Estate Principles Professor Clements Test Problems – page 424. 1. The most typical adjustment interval on an adjustable rate mortgage (ARM) once the interest begins to change is: b) One year 2. A characteristic of a partially amortized loan is: b) A balloon payment is required at the end of the loan term 3. If a mortgage is to mature (i.e. become due) at a certain future time without any reduction in principal, this is called: d) Interest-only mortgage 4. The dominant loan type originated by most financial institutions is the: a) Fixed-payment, fully amortized mortgage 5. Which of the following statements is true about 15-year and 30-year fixed-payment mortgages? d) Assuming that they can afford the payments on both mortgages, borrowers should choose a 30-year mortgage over an otherwise identical 15-year loan if their
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Unformatted text preview: discount rate (opportunity cost) exceeds the mortgage rate. 6. Adjustable rate mortgages (ARMs) commonly have all of the following except: e) Inflation index 7. The annual percentage rate (APR) was created by: a) The Truth-in-Lending Act of 1968 8. On a level-payment loan with 12 years (144 payments) remaining, at an interest rate of 9 percent, and with a payment of $1,000, the balance is: c) 87,871 1 Chapter 15: Mortgage Calculations and Decisions 9. On the following loan, what is the best estimate of the effective borrowing cost if the loan is prepaid in six years? d) 8.7 percent 10. Lender’s yield differs from effective borrowing cost (EBC) because: c) EBC accounts for additional up-front expenses that lender’s yield does not. 2 Loan amount: $100,000 Interest rate: 7 percent Term: 180 months Up-front costs: 7% of loan amount...
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