ARE144SP10MT2_va_KEY - Name:_KEY_ Last 4 digits of your...

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Name:____KEY______________________ Last 4 digits of your Student ID Number:__________ Managerial Economics (ARE) 144 University of California, Davis, Spring 2010 Dr. John H Constantine Midterm 2, Thursday, May 13, 2010 115 TOTAL POINTS
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1 Part I: Multiple Choice (30 total points; each question is worth 3 points.) There are 10 multiple choice questions, each having only one correct answer. 1) Which of the following is false concerning buydown loans? a) They always lower the rate on the loan for the borrower for the entire loan term b) They are often used during periods of high inflation c) Help borrowers qualify for a loan d) They can be offered by home builders 2) Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following except: a) All finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees. b) All compensation to the originating brokers if one was used by the borrower. c) Any prepayment of principal to be made on the loan. d) Premiums for required forms of insurance. 3) Most Adjustable Rate Mortgage (ARM) loans have been marketed with a temporarily reduced interest rate commonly referred to as a: a) rate cap b) teaser rate c) payment cap d) prepayment rate 4) A mortgage is best defined as a legal document that: a) Creates an obligation to repay a loan under specific terms b) Defines a possessory interest in real estate c) Conveys ownership of a property to its purchaser d) Names real estate as the security or collateral for the repayment of a loan 5) Which of the following is not an alternative to foreclosure? a) Restructuring the mortgage loan b) Transfer of the mortgage to a new owner c) Redemption d) Prepackaged bankruptcy 6) Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender? Interest Rate Risk Default Risk a) Higher Higher b) Lower Lower c) Higher Lower d) Lower Higher 7) In order to calculate the APR for an ARM, you must, a) Assume the worst case scenario and use interest rates at their highest possible point over the life of the loan b) Only use the first year’s given interest rate c) Estimate interest rates over the life of the loan d) Use only the first five year’s interest rates because they can easily be estimated and most people only own a property for five years
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This note was uploaded on 03/14/2012 for the course ARE 144 taught by Professor Johnson,e during the Spring '08 term at UC Davis.

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ARE144SP10MT2_va_KEY - Name:_KEY_ Last 4 digits of your...

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