Chapter 14 Math Random Flashcards
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
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
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
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
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
Alexander Management Company Limited has just arranged a $1,450,000 mortgage loan to finance their purchase of a small retail shopping complex. The interest rate is 12.75% per annum compounded semi- annually; the amortization period is 20 years and the term of the loan is 10 years. Payments are to be made quarterly and rounded up to the next higher dollar. Which one of the following statements is FALSE with regard to this contract?
(1) The quarterly payment will be $49,701.
(2) The outstanding balance at the end of the term will be less than $1,123,500.
(3) Under the terms of the Canada Interest Act, the total outstanding balance on this loan can be prepaid at any time after five years from the initiation date of the mortgage.
(4) The lender has no right to demand payment of the total outstanding balance at any time prior to the end of the contractual term provided the borrower meets all contractual obligations.
3
Given a nominal rate of interest of 5%, the greater the frequency of compounding:
(1) the lower the effective annual rate.
(2) the higher the rate per compounding period.
(3) the higher the yield to the lender.
(4) the lower the payments to the borrower
3
All other things being equal, shortening the contractual term on a constant level payment mortgage always has the effect of:
(1) increasing the size of the periodic payments required to fully amortize the loan.
(2) increasing the size of the outstanding balance payment due at the end of the term.
(3) Both of the above
(4) None of the above
2
When casual reference is made to the current mortgage lending rate, the common practice is to quote:
(1) effective annual interest rates.
(2) nominal interest rates.
(3) equivalent interest rates.
(4) interest rates per compounding period
2
A borrower who makes accelerated biweekly payments:
(1) will make a smaller number of payments in a calendar year than a borrower who makes constant monthly payments (all other loan terms being equal).
(2) will pay more interest over the life of the loan than a than a borrower who makes constant monthly payments (all other loan terms being equal).
(3) pays one-twelfth of the annual payment every two weeks.
(4) pays one-half of the monthly payment every two weeks.
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
When the amortization period of a loan is lengthened:
(1) the interest portion of the periodic payments will be reduced.
(2) the amount of outstanding principal at any point in time will be increased.
(3) the interest rate on the mortgage will be reduced.
(4) there is reduced risk to the lender.
2
With fully amortized constant payment mortgages, when payments are rounded up to the next higher dollar, the numbers of payments necessary to repay the loan amount:
(1) will always increase in addition to increasing the size of the final payment.
(2) may decline in addition to reducing the size of the final payment.
(3) may increase to the length of the term.
(4) cannot be determined.
2
