Chapter 1

Question 1

Mortgage loan

Answer 1

A loan secured by a mortgage or deed of trust that creates a lien against real property; especially, a loan used to purchase real property when that same property serves as security for the loan.

Question 2

Lien

Answer 2

A nonpossessory interest in real property, giving the lienholder the right to foreclose if the owner does not pay a debt owed to the lienholder.

Question 3

Collateral

Answer 3

Property (personal or real) accepted by a lender as security for a loan. The lender has the right to keep or sell the collateral if the borrower fails to repay the loan as agreed.

Question 4

Principal

Answer 4

The original amount of a loan, or the remainder of that amount after part of it has been repaid

Question 5

Interest

Answer 5

A periodic charge that a lender requires a borrower to pay in exchange for the temporary use of the borrowed funds, usually expressed as an annual percentage of the remaining principal balance. Sometimes referred to as the cost of borrowing money or rent on the borrowed money.

Question 6

Investment

Answer 6

When someone (an investor) makes a sum of money (investment capital) available for use by another person or entity, in the expectation that this will generate a return (a profit) for the investor.

Question 7

Investment capital

Answer 7

Accumulated wealth (savings) made available to fund business enterprises or other ventures, projects, or transactions

Question 8

Return on investment

Answer 8

Investor’s profit

Question 9

Return of investment / Recapture

Answer 9

recapture of amount originally invested

Question 10

Ownership investment

Answer 10

An investment in which the investor’s funds are used to purchase an asset or a property interest in an asset. Ex. Real estate and stocks.

Question 11

Debt investment

Answer 11

Investor provides money to an entity that will eventually repay it. Ex. Loans, bonds, savings account, and CDs.

Question 12

Appreciation

Answer 12

An increase in the value of an asset over time; the opposite of depreciation.

Question 13

Dividend

Answer 13

A share of a company’s profits paid to a stockholder as a return on the investment

Question 14

Certificate of Deposit (CD)

Answer 14

A savings arrangement in which a depositor agrees to leave money on deposit for the use of the financial institution for a specified period, or pay a penalty for earlier withdrawal.

Question 15

Securities

Answer 15

Investment instruments that confer an interest or a right to payment, without allowing any direct managerial control over the enterprise invested in. Liquid assets.

Question 16

Stock

Answer 16

A share of a corporation’s stock represents a fractional ownership interest in the corporation; a shareholder may receive a return on the investment in the form of dividends and/or appreciation of the share’s value.

Question 17

Bond

Answer 17

A certificate of indebtedness issued by a governmental body or a corporation; it will generate a return for the bondholder in the form of periodic payments of interest until the principal is repaid in a lump sum.

Question 18

Mutual fund

Answer 18

A company that invests its capital in a diversified portfolio of securities on behalf of its investors, who own shares in the fund.

Question 19

Liquid investment

Answer 19

An investment that can be quickly and easily converted into cash

Question 20

Yield

Answer 20

The rate of return that an investor receives on an investment, usually stated as an annual percentage of the amount divested. Not necessarily fixed.

Question 21

Portfolio

Answer 21

The mix of investments and cash reserves held by an investor.

Question 22

Diversification

Answer 22

The practice of investing in a variety of different ways and/or in a variety of different sectors of the economy, to make a portfolio safer

Question 23

Interest rate risk

Answer 23

The risk that, after a loan is made for a specified term at a fixed interest rate, market interest rates will rise and the lender will miss the opportunity to invest the loaned funds at a higher rate.

Question 24

Prepayment risk

Answer 24

The risk that a loan will be paid off sooner than expected (often because market interest rates have dropped), reducing the lender’s anticipated yield.

Question 25

Market interest rates

Answer 25

The rates that, under current economic conditions, are paid on particular types of investments or charged for particular types of loans.

Question 26

Factors that affect whether someone can afford to buy a home:

Answer 26

Housing prices
Income
Tax considerations
Availability of financing

Question 27

SEC regulates securities trading to protect investors

Answer 27

Financial disclosures required

No insider trading

Question 28

Refinancing

Answer 28

Home owners get new mortgage at lower rate and use proceeds of new mortgage to pay off old mortgage.