Questions from Financial Markets

Q: Since fixed-rate mortgages and bonds have similar payment flows,

Since fixed-rate mortgages and bonds have similar payment flows, how is a financial institution with a large portfolio of fixed-rate mortgages affected by rising interest rates? Explain.

Q: If a bond’s coupon rate is greater than the investor’s required rate

If a bond’s coupon rate is greater than the investor’s required rate of return on the bond, would the bond’s price be greater than or less than its par value? Explain.

Q: Why does the required rate of return for a particular bond change

Why does the required rate of return for a particular bond change over time?

Q: Distinguish between FHA and conventional mortgages.

Distinguish between FHA and conventional mortgages.

Q: Mortgage lenders with fixed-rate mortgages should benefit when interest rates

Mortgage lenders with fixed-rate mortgages should benefit when interest rates decline, yet research has shown that this favorable impact is dampened. By what?

Q: Identify the relevant characteristics of any security that can affect the security’s

Identify the relevant characteristics of any security that can affect the security’s yield.

Q: Describe the factors that affect mortgage prices.

Describe the factors that affect mortgage prices.

Q: Explain why some financial institutions prefer to sell the mortgages they originate

Explain why some financial institutions prefer to sell the mortgages they originate.

Q: What types of financial institutions finance residential mortgages? What type of

What types of financial institutions finance residential mortgages? What type of financial institution finances the majority of commercial mortgages?

Q: Explain why the rescue of Fannie Mae and Freddie Mac improved the

Explain why the rescue of Fannie Mae and Freddie Mac improved the ability of mortgage companies to originate mortgages.