In what sense has the investor in a residential mortgage loan granted the borrower (homeowner) a loan similar to a callable bond?
What will be an ideal response?
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 prevailingmortgage rates fall below the loan's note rate. For example, if the note rate on amortgage originated five years ago is 8% and the prevailing mortgage rate (i.e., rate atwhich a new loan can be obtained) is 5.5%, then there is an incentive for the borrower torefinance the loan.
The decision to refinance will depend on several factors, but the singlemost important one is the prevailing mortgage rate compared to the note rate. The disadvantageto the investor is that the proceeds received from the repayment of the loan mustbe reinvested at a lower interest rate than the note rate.This risk is the same as that faced by an investor in a callable corporate or municipalbond. However, unlike a callable bond, there is no premium that must be paid by the borrowerin the case of a residential mortgage loan. Any principal repaid in advance of thescheduled due date is paid at par.
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The sales volume variance is a result of the difference between the actual sales price and the budgeted sales price
Indicate whether the statement is true or false
Which of the following are advantages of the buy and hold strategy?
I. rapid accumulation of wealth II. low transaction costs III. capital gains taxed at the long-term rate IV. portfolio requires less time and energy to manage than for most other strategies A) I and II only B) II and III only C) II, III and IV only D) I, II, III and IV
What is historical analysis?
A. When numerical data are available, a trend can be plotted to display changes through time and into the future. B. A trend is examined to identify its nature, causes, speed of development and potential impacts. C. Trends viewed as particularly important in a specific community, industry or sector are carefully monitored, watched and reported to key decision makers. D. Historical events are studied to anticipate the outcome of current developments.
A(n) ____________________ relationship means data can have multiple occurrences in both entities
Fill in the blank(s) with correct word