Chapter 14 Flashcards
A $170,000 mortgage loan, written at a nominal rate of 7% per annum, compounded annually, has a 2-year contractual term. Payments are made monthly and are based on a 20-year amortization period. Payments are rounded to the next higher dollar. What is the size of the required payments?
(1) $1,307
(2) $1,319
(3) $1,275
(4) $1,297
4
An investor plans to pay $200,000 for a vacant lot that the investor feels will sell at the end of three years for $280,985.60. What yield, expressed as an annual rate with semi-annual compounding, will the investor earn? (Assume that these are the only cash flows for this investment.)
(1) 11.660105%
(2) 11.386551%
(3) 12%
(4) There is no possible solution for this problem.
1
The “term” of a mortgage ALWAYS:
(1) necessitates the payment of an outstanding balance payment.
(2) specifies the duration of the contractual relationship.
(3) is equal to the amortization period.
(4) is shorter than the amortization period.
2
A borrower is arranging a mortgage with Nicety Finance Company. The loan amount is $175,000, the interest rate is 4.5% per annum, compounded semi-annually, the amortization period is 20 years, and the contractual term is 2 years. If payments are made monthly and rounded up to the next higher $10, calculate the outstanding balance at the end of the loan term.
(1) $144,157.84
(2) $157,323.50
(3) $163,479.73
(4) $151,232.96
3
A borrower has arranged a $159,900 mortgage at j12=12% with a 25-year amortization, 5-year term, and monthly payments. If all payments are paid when due, how much principal was paid off during the 5-year term?
(1) $89,583.15
(2) $6,950.91
(3) $152,949.09
(4) $6,529.15
2
A mortgage loan has a face value of $370,000, an interest rate of j2 = 5.5%, an amortization period of 20 years, a term of 3 years, and an option to make accelerated biweekly payments, rounded up to the next highest dollar. If this option is exercised, what is the outstanding balance owing at the end of the 3-year term?
(1) $232,928.17
(2) $311,500.07
(3) $328,192.44
(4) $317,935.02
3
An investor has the opportunity to invest in one of four alternative mortgages, each with the same degree of risk. The only distinction between these investments is the rate of interest charged to the borrower. These rates are:
Loan A: 13.25% per annum, compounded daily Loan B: 13.50% per annum, compounded quarterly
Loan C: 13.75% per annum, compounded semi-annually Loan D: 14.25% per annum, compounded annually
Assuming that the investor can purchase each mortgage for the same amount of money, which investment will he prefer?
(1) Loan A
(2) Loan B
(3) Loan C
(4) Loan D
4
Calculate the monthly payment required for the following mortgage:
Principal of $40,000; 14% per annum, compounded semi-annually; amortization period of 20 years
(1) $485.47
(2) $486.07
(3) $469.56
(4) $477.41
2
With fully amortized constant payment mortgages, when payments are rounded up to the next higher cent, the final payment necessary to repay the loan amount will be:
(1) smaller than the regular payments.
(2) larger than the regular payments.
(3) will be the same as the regular payments.
(4) impossible to determine.
1
A seller is willing to sell his house, by way of a take-back mortgage, for $90,000. The seller demands 24 monthly payments, and payment of the outstanding balance in the amount of $75,000 with the 24th payment. The seller wishes to earn an effective annual rate of 15% on his money. What is the monthly payment required?
(1) $1,664.80
(2) $7,048.03
(3) $1,599.22
(4) $720.60
3
If payments are rounded up to the next higher dollar, the most likely result is:
(1) an increase in the cost to the borrower.
(2) a higher yield to the lender.
(3) a lower final payment.
(4) an increase in the number of payments.
3
Josie Purchaser arranged a mortgage loan for $75,000 at 9.5% per annum, compounded semi-annually, with a 25-year amortization period and monthly payments. What is her interest cost for the first month?
(1) $645.78
(2) $582.33
(3) $612.27
(4) $63.45
2
A mortgage was written for $48,000 at an interest rate of j2 = 8%, an amortization period of 15 years, and monthly payments. Calculate the balance owing at the end of five years, rounded to the nearest dollar.
(1) $38,507
(2) $37,725
(3) $47,289
(4) $46,181
2
A mortgage was written for $48,000 at an interest rate of j2 = 8%, an amortization period of 15 years, and monthly payments. Calculate the balance owing at the end of five years, rounded to the nearest dollar.
(1) $38,507
(2) $37,725
(3) $47,289
(4) $46,181
2
A local builder negotiates an interest only loan with ABC Finance Company. The face value of the loan is
$450,000, the interest rate is j2 = 8%, the term of the loan is 3 years, and the interest only payments are to be made monthly. What will be the size of the monthly interest only payments?
(1) $2,951.19
(2) $3,434.47
(3) $3,727.61
(4) $2,520.33
1
An interest only loan has an original loan amount of $15,000, carries an interest rate of 6.5% per annum, compounded semi-annually, and has monthly payments of $80.17. When will this loan be completely repaid?
(1) 670 months
(2) 696.44934 months
(3) 300 months
(4) impossible to determine from the information provided
4
The effective annual rate of interest for 10% per annum, compounded semi-annually, is:
(1) greater than the effective annual rate for 9% per annum, compounded semi-annually.
(2) more than the effective annual rate for 10% per annum, compounded annually.
(3) less than the effective annual rate for 10% per annum, compounded monthly.
(4) all of the above.
4
As one lowers a discount (or expected yield) rate, the present value of a given series of future payments:
(1) decreases.
(2) could go up or down depending on the timing of the payments.
(3) increases.
(4) remains constant.
3
A borrower has arranged a loan of $32,000 at an interest rate of 7% per annum, compounded semi-annually with payments set at $1,400 per month. What is the amortization period of the loan?
(1) 23.603054 years
(2) 24.275695 years
(3) approximately 2 years
(4) approximately 20 years
3
An investor wants to decide whether to buy a mortgage which calls for monthly payments of $390 for 20 years. If the investor can earn j2 = 8% in other investments, at what price should the mortgage be purchased?
(1) $48,921.57
(2) $46,626.12
(3) $45,232.84
(4) $47,081.12
4
2 2nd pmt 8 i/yr 2nd eff% 12 pmt 2nd i/yr =7.87 240 N -390 PMT = 226,037.44
then you are going to start from the very beginning again, and plug in the FV instead of the PMT to get the PV
2 2nd pmt 8 i/yr 2nd eff% 12 pmt 2nd i/yr =7.87 240 N FV = 226,037.44 PV = 47,081.12
What will be the purchase price of a mortgage which will provide the buyer with 48 payments of $650 plus an outstanding balance of $55,858.13 at the end of 48 months, if the buyer of the mortgage requires an effective annual yield of 15%?
(1) $55,698.26
(2) $54,867.08
(3) $52,536.87
(4) $58,989.30
1
On an interest accruing mortgage, which one of the following interest rates would result in the highest outstanding balance?
(1) j12 = 14%
(2) j6 = 14%
(3) j4 = 14%
(4) j2 = 14%
1
Joanne Carmichael borrows $15,000 at a periodic interest rate of 0.5% per month. She agrees to repay $450 per month. For how many FULL years will Joanne have to make payments?
(1) 3
(2) 9
(3) 27
(4) 37
1
