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Q:
In a tap system:a. There is a regular calendar auction.b. Winning bidders are allocated securities at the highest yield accepted by thegovernment. c. Additional bonds of a previously outstanding bond issue are auctioned.d. Auctions are announced when market conditions appear favorable.e. Winning bidders are allocated securities at the yield they bid.
Q:
By mid 2007, the European government bond market:a. Represented about 40% of the world's outstanding government bonds.b. Was second only to the U.S. Treasury market in terms of size.c. Was about 50% larger than the Japanese government bond market.d. a and b only.e. a and c only.
Q:
When making a direct comparison between the yield to maturity on a U.S. fixed-ratebond and a Eurodollar fixed rate bond:a. An adjustment must be made because Eurodollar bonds pay annually rather than semiannually.b. Given the yield on a Eurodollar fixed-rate bond, the bond-equivalent yield will always be lower.c. Given the yield on a U.S. fixed-rate bond, the yield to maturity on an annual basis is always less than the yield to maturity on a bond-equivalent basis.d. a and b only.e. a and c only.
Q:
If the yield to maturity on a Eurodollar bond is 5% then the bond-equivalent yield is:a. 4.05%.b. 4.94%.c. 5.00%.d. 5.06%.e. 5.58%.
Q:
Which type of bond allows the warrant owner to buy additional bonds from the issuer at the same price and yield as the host bond?a. Equity warrant.b. Debt warrant.c. Currency warrant.d. Depreciation warrant.e. All of the above.
Q:
A dual-currency issue:a. Pays coupon interest in one currency and the principal in a second currency.b. Pays coupon interest in two different currencies.c. Pays the principal in two different currencies.d. Is one that is issued in a different currency than the one the investor pays with.e. None of the above.
Q:
The coupon rate on a floating-rate note may be:a. LIBOR.b. A stated margin.c. The bid on LIBOR.d. A spread over LIBID.e. The arithmetic average of LIBOR and LIBID.
Q:
An issue that has both a minimum and a maximum coupon rate is said to be:a. Capped.b. Floored.c. Drop-locked.d. Collared.e. Restricted.
Q:
All of the following regarding Euro straights are true EXCEPT:a. They make coupon payments semiannually.b. They are referred to as "plain vanilla" bonds.c. They are fixed-rate coupon bonds.d. They are issued on an unsecured basis.e. They are usually issued by high-quality entities.
Q:
Australia is classified within the:a. Euro zone market bloc.b. Non-euro zone market bloc.c. Dollar bloc.d. United Kingdom bloc.e. Emerging markets bloc.
Q:
The global bond market can be classified into the national bond market and:a. The international bond market.b. The external bond market.c. The offshore bond market.d. The Eurobond market. e. All of the above.
Q:
In the United Kingdom, a pound-denominated bond issued by a Japanese corporation and subsequently traded in the United Kingdom's bond market:a. Is part of the Japanese foreign bond market.b. Is part of the United Kingdom's foreign bond market.c. Is nicknamed a "samurai bond."d. a and c only.e. b and c only.
Q:
Are CMBS and nonagency RMBS structures similar or different? Discuss.
Q:
As with a nonagency RMBS, a servicer is required. Name three responsibilities of a servicer.
Q:
The most prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal. Describe the nature of this "conduit deal"?
Q:
CMBS can be classified by the type of loan pool. Name and briefly describe the two types.
Q:
What is a yield maintenance charge?
Q:
What is a prepayment lockout?
Q:
In regards to commercial mortgage loans, name four of the major property types that have been securitized.
Q:
Describe some main features of a commercial loan.
Q:
Balloon risk is something that has to be dealt with in structuring an RMBS.
Q:
CMBS are backed by either newly originated or seasoned commercial mortgage loans.
Q:
In a CMBS transaction, the special servicer is responsible for overseeing the deal, verifying that all servicing agreements are being maintained, and facilitating the timely payment of interest and principal.
Q:
Fusion or hybrid deals are multiple borrower CMBS deals that combine loans that are included in conduit deals with a large or "mega" loan.
Q:
The least prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal.
Q:
CMBS can be classified only by CMBS with loans from a single borrower.
Q:
CMBS can be issued by Ginnie Mae, Fannie Mae, Freddie Mac, and private entities.
Q:
A commercial mortgage-backed security is a security backed by at least two commercial mortgage loans, the loans being either newly originated or seasoned loans.
Q:
Balloon risk associated with a commercial mortgage loan is the risk that a borrower will not be able to make the balloon payment because either the borrower cannot arrange for refinancing at the balloon payment date or cannot sell the property to generate sufficient funds to pay off the balloon balance.
Q:
Put protection for commercial mortgage loans includes prepayment lockout, defeasance, prepayment penalty points, and yield maintenance charges.
Q:
The two measures that have been found to be key indicators of the potential credit performance of a commercial mortgage loan are the debt-to-service coverage ratio and the loan-to-value ratio.
Q:
Residential mortgage loans are nonrecourse loans for the purchase of income-producing properties, the major ones being apartment buildings, office buildings, industrial properties, shopping centers, hotels, and health care facilities.
Q:
First, prepayment terms for commercial mortgages differ significantly from residential mortgages.Commercial mortgages impose prepayment penalties or restrictions on prepayments. Although there are residential mortgages with prepayment penalties, they are a small fraction of the market.The second difference in structuring is due to the significant difference between commercial and residential mortgages with respect to the role of the servicer when there is a default. With commercial mortgages, the loan can be transferred by the servicer to the special servicer when the borrower is in default, imminent default, or in violation of covenants.The third difference in structuring between CMBS and RMBS has to do with the role of the buyers when the structure is being created. More specifically, typically potential buyers of the junior bond classes are first sought by the issuer before the deal is structured. The potential buyers first review the proposed pool of mortgage loans and in the review process, depending on market demand for CMBS product, may request the removal of some loans from the pool.Which of the below statements is FALSE?A) Although there are residential mortgages with prepayment penalties, they are a small fraction of the market.B) In structuring a CMBS, if there is a defeasance, the credit risk of a CMBS virtually disappears because it is then backed by U.S. Treasury securities.C) With commercial mortgages, the loan can be transferred by the servicer to the special servicer when the borrower is in default, imminent default, or in violation of covenants.D) None of these
Q:
One of the three major differences in the structures of a CMBS transaction and a nonagency RMBS transaction include: ________.A) Residential mortgages impose prepayment penalties or restrictions on prepayments.B) The role of the buyers when the structure is being created is different.C) With residential mortgages, the loan can be transferred by the servicer to the special servicer when the borrower is in default, imminent default, or in violation of covenants.D) All of these
Q:
In a CMBS transaction, there is usually a master servicer and special servicer. The master servicer is responsible for (1) overseeing the deal, (2) verifying that all servicing agreements are being maintained, and (3) facilitating the timely payment of interest and principal.Basically the objective of the special service is to maximize the recovery of defaulted loans.The structure of a CMBS transaction is the same as in a nonagency RMBS ________.A) in that most structures have a sing bond class (tranch) with the same rating, and there are regulations for the distribution of interest and principal to the bond class.B) in that most structures have multiple bond classes (tranches) with the same ratings, and there are rules for the distribution of interest and principal to the bond classes.C) in that most structures have multiple bond classes (tranches) with different ratings, but there are no regulations for the distribution of interest and principal to the bond classes.D) in that most structures have multiple bond classes (tranches) with different ratings, and there are rules for the distribution of interest and principal to the bond classes.
Q:
Which of the below statements is FALSE?A) A seasoned loan is one that is already residing on the balance sheet of a bank or insurance company.B) Responsibilities of the servicer include collecting monthly loan payments, keeping records relating to payments, and maintaining property escrow for taxes and insurance.C) Responsibilities of the master servicer include overseeing the deal and verifying that all servicing agreements are being maintained.D) Basically the objective of the master service is to maximize the recovery of defaulted loans.
Q:
Which of the below statements is TRUE?A) One type of RMBS is those backed by large properties such as regional malls or office buildings.B) Conveyance deals are created by investment banking firms that establish a conduit arrangement with mortgage bankers.C) CMBS deals (that are called fusion deals or hybrid deals) are multiple borrower CMBS deals that combine loans that are included in conduit deals with a large or "mega" loan.D) All of these
Q:
CMBS ________.A) are backed by seasoned commercial mortgage loans.B) are backed by newly originated loans.C) can be backed by a single borrower.D) All of these
Q:
The largest sector of the CMBS market is constituted by ________.A) securities backed by Ginnie Mae.B) securities issued by private entities.C) securities backed by Freddie Mac.D) securities issued by the two government-sponsored enterprises.
Q:
Ginnie Mae ________.A) issues securities that are not backed by FHA-insured multifamily housing loans.B) does not create project loan pass-through securities.C) purchase multifamily loans from approved lenders and either retain them in their portfolio or use them for collateral for a security.D) creates securities that can be backed by a single project loan on a completed project or one or more project loans.
Q:
CMBS can be issued by ________.A) Ginnie MacB) Fannie Mac.C) Freddie Mae.D) private entities.
Q:
________ is a security backed by one or more commercial mortgage loans.A) A CMBSB) An RMBSC) An FHAD) A COM
Q:
In regards to commercial mortgage loans, which of the below statements is FALSE?A) Commercial mortgage loans are typically balloon loans requiring substantial principal payment before the end of the balloon term.B) If the borrower fails to make the balloon payment, the borrower is in default.C) The lender may extend the loan and in so doing will typically modify the original loan terms.D) Balloon risk is the risk that a borrower will not be able to make the balloon payment because the borrower either cannot arrange for refinancing at the balloon payment date or cannot sell the property to generate sufficient funds to pay off the balloon balance.
Q:
________ are predetermined penalties that must be paid by the borrower if the borrower wishes to refinance.A) defeasanceB) Prepayment penalty pointsC) prepayment lockoutD) None of these
Q:
With ________, the borrower provides sufficient funds for the servicer to invest in a portfolio of Treasury securities that replicates the cash flows that would exist in the absence of prepayments.
A) defeasance
B) yield maintenance charges
C) prepayment lockout
D) prepayment penalty points
Q:
A ________ is a contractual agreement that prohibits any prepayments during a specified period of time, called the lockout period.
A) defeasance
B) yield maintenance charges
C) prepayment lockout
D) prepayment penalty points
Q:
For commercial mortgage loans, call protection can take the following forms: ________.A) prepayment lockout and defeasance.B) prepayment lockout and prepayment penalty points.C) defeasance and yield maintenance charges.D) All of these
Q:
Which of the below statements is FALSE?A) For residential mortgage loans, "value" is either market value or appraised value.B) For income-producing properties, the value of the property is based on the fundamental principles of valuation: the value of an asset is the present value of its expected cash flow.C) In valuing commercial property, the cash flow is the future NOI and the discount rate (reflecting the risks associated with the cash flow) is used to compute the present value of the future NOI.D) Investors are often confident about estimates of market value and the resulting LTVs reported for properties.
Q:
Which of the below statements is TRUE?A) The debt-to-service coverage ratio (DSC ratio) is the ratio of a property's net operating income (NOI) multiplied by the debt service.B) The higher the DSC ratio, the more likely it is that the borrower will be able to meet debt servicing from the property's cash flow.C) The NOI is defined as the rental income plus cash operating expenses (adjusted for a replacement reserve).D) A ratio less than 1 for DSC means that the cash flow from the property is sufficient to cover debt servicing.
Q:
Regardless of the property type, the two measures that have been found to be key indicators of the potential credit performance are the ________.
A) debt-to-equity leverage ratio and the loan-to-value ratio.
B) debt-to-service coverage ratio and the loan-to-value ratio.
C) debt-to-service coverage ratio and the value-to-loan ratio.
D) debt-to-equity leverage ratio and the value-to-loan ratio.
Q:
If there is a default on a commercial mortgage loan, the lender looks to the proceeds from the ________ for repayment and has ________ to the borrower for any unpaid balance.
A) sale of the property; no recourse
B) sale of the property; little recourse
C) purchase of the property; no recourse
D) sale of the property; recourse
Q:
Commercial mortgage loans are ________, which means that if the borrower fails to make the contractual payments, the lender can only look to the income-producing property backing the loan for interest and principal repayment.
A) nonpayment loans
B) contractless loans
C) remedial loans
D) nonrecourse loans
Q:
A commercial mortgage loan is originated either to ________.
A) finance a commercial purchase or to refinance a prior mortgage obligation.
B) finance a residential purchase or to refinance a prior mortgage obligation.
C) finance a commercial purchase or to refinance a subsequent mortgage obligation.
D) None of these
Q:
Commercial mortgage loans are for mortgage loans for ________.
A) mortgage-producing properties.
B) income-manufacturing mortgages.
C) income-producing properties.
D) mortgage-manufacturing properties.
Q:
Manufactured housing-backed securities, which are backed by loans for manufactured homes, are issued by:a. Fannie Mae.b. Ginnie Mae.c. Private entities.d. b and c only.e. All of the above.
Q:
Home equity loans are typically:a. First lien on property.b. Second lien on property.c. Unsecured.d. Secured by auto loans.e. None of the above.
Q:
The most common forms of internal credit enhancements are:a. Overcollateralization.b. Senior structures.c. A letter of credit from a bank.d. a and b only.e. All of the above.
Q:
Cash reserve funds are:a. A form of reserve funds.b. Typically used in conjunction with external credit enhancements.c. A form of internal credit enhancement.d. All of the above.e. None of the above.
Q:
The most common forms of external credit enhancements are:a. A corporate guarantee.b. A bank letter of credit.c. Bond insurance.d. a and b only.e. All of the above.
Q:
For an amortization asset, the amortization is based on the:a. Gross weighted average coupon.b. Straight coupon rate.c. Weighted average maturity.d. a and c only.e. None of the above.
Q:
Examples of nonamortizing assets include:a. Credit card receivables.b. Home equity loans.c. Auto loans.d. a and b only.e. All of the above.
Q:
Amortizing assets are loans, which:a. Have a schedule of principal and interest payments over the life of the loan.b. Do not have a schedule for the periodic payments that the individual borrower must make.c. Require the borrower to make a minimum periodic payment.d. b and c only.e. All of the above.
Q:
For a corporation, an asset-backed security:a. Is an alternative means of raising funds.b. Provides an opportunity to reduce funding costs by separating the credit rating of the issuer from the credit quality of the pool of loans or receivables.c. Is a high return investment.d. a and b only.e. All of the above.
Q:
Asset-backed securities are securities backed by:a. Credit card receivables.b. Auto loans.c. Commercial mortgage loans.d. Home equity loans.e. a, b, and d only.
Q:
Discuss the motivation for issuing asset-backed securities.
Q:
Explain the different types of external and internal credit enhancements.
Q:
Describe the major differences between an asset-backed security and a corporate bond.
Q:
Which of the following statements is false?a. Default is a prepayment.b. Nonamortizing assets have no prepayment.c. Prepayments occur due to loan consolidations.d. Prepayments are affected by the prevailing level of interest rates relative to the interest rate on the loan.e. None of the above.
Q:
The performance of a portfolio of receivables is measured by:a. Delinquencies.b. Gross portfolio yield.c. Monthly payment rate.d. b and c only.e. All of the above.
Q:
Asset-backed securities and corporate bonds differ in terms of:a. Credit risk.b. Operational risk.c. Investment risk.d. a and b only.e. None of the above.
Q:
Student loans that are not part of a government guarantee program are called:a. Term loans.b. Bank loans. c. Alternative loans.d. Subsidized loans.e. None of the above.
Q:
In an asset-backed security transaction:a. There is no active management.b. There is no business risk.c. The servicer simply collects the cash flow.d. All of the above.e. None of the above.
Q:
For a pool of credit card receivables, the cash flow consists of:a. Collected finance charges.b. Fees.c. Principal.d. a and b only.e. All of the above.
Q:
To purchase student loans in the secondary market and to securitize pools of student loans, Congress created a government-sponsored enterprise commonly known as:a. Fannie Mae. b. Sallie Mae.c. Freddie Mac.d. Ginnie Mae.e. None of the above.
Q:
In the typical pass-through structure of auto loan-backed deals, there is a:a. Senior tranche.b. Subordinated tranche.c. Accrual tranche.d. a and b only.e. All of the above.
Q:
The monthly cash flow that an investor in an SBA-backed security receives consists of:a. The coupon interest based on the coupon rate set for the period.b. The scheduled principal repayment.c. Prepayments.d. All of the above.e. a and b only.
Q:
Prepayments for auto loan-backed securities are measured in terms of:a. Conditional prepayment rate (CPR).b. Absolute prepayment speed (ABS).c. Prospectus prepayment curve (PPC).d. Shifting interest.e. None of the above.
Q:
Compare and contrast mortgage-backed securities and commercial mortgage-backed securities.
Q:
Describe the risks an investor in mortgage pass-throughs is exposed to.
Q:
Discuss the development of the current mortgage market.