Why is the cash flow of a residential mortgage loan unknown?
What will be an ideal response?
There are many factors that can the cash flow of a residential mortgage unknown. These include: (1) credit risk, (2) liquidity risk, (3) price risk, and (4) prepayment risk.Credit risk is the risk that the homeowner/borrower will default. Liquidity risk refers tothe degree of liquidity in the secondary market for mortgage loans where the bid-ask spreads are large compared to other debt instruments. Price risk refers to the fact that the price of a fixed-income instrument will move in an opposite direction from market interest rates. Thus, a rise in interest rates will decrease the price of a mortgage loan. Prepayment risk is the risk associated with a mortgage's cash flow due to prepayments. More specifically, investors are concerned that borrowers will pay off
a mortgage when prevailing mortgage rates fall below the loan's note rate.
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__________ attempts to explain how people select, interpret, and change various situations.
A. Interactionalism B. Contextualism C. Universalism D. Individualism E. Systems theory
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A. serve as a rough measure of the value of resources used to produce goods and services. B. coordinate the economic activity of many people and institutions. C. serve as a rough measure of the social importance of consumer goods and services. D. allocate resources and distribute income according to consumer preferences. E. All these answers are correct.
A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40 per share. The amount recorded for the paid-in capital in excess of par account is ________
A) $420,000 B) $380,000 C) $400,000 D) $800,000