Financial Markets Lesson 10 Quiz Answer

Niyander September 23, 2021
Financial Markets Lesson 10 Quiz Answer


Financial Markets Lesson 10 Quiz Answer


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#Financial market
#Finance
#Yale University
#University


Week- 4

Lesson #10 Quiz

 

Q1) Which of the following is FALSE of Direct Participation Programs (DPPs)?

  • They may skip corporate profits tax.
  • A major example of a DPP is a real estate partnerships.
  • They are for accredited investors only
  • They must operate for at least some minimum amount of time.



Q2) If Sabine is “under water”, what can we say about her situation? 

  • The value of her home is less than the value of her mortgage.
  • She has sent her keys to the bank and abandoned her house.
  • She has no choice but to declare bankruptcy.
  • She does not have enough money to make payments on her home.



Q3) Why does the 30 year mortgage rate so closely match the 10 year treasury bond YTM?

  • People could choose to finance their home with 10 year treasury bonds instead of with 30 year mortgages.
  • The interest rate of 30 year mortgages and the price of 10 year treasury bonds are set by the same organization.
  • There are similar psychological causes which influence both the 30 year mortgage rate and the 10 year treasury YTM.
  • Banks intentionally track the 10 year treasury bond YTM.



Q4) Who pays for private mortgage insurance on a mortgage?

  • The US government
  • The homeowner
  • Thank banks
  • Fannie Mae and Freddie Mac



Q5) Before the recession in 2007, why were banks giving out mortgages to people who could not afford them?

  • Banks would resell to mortgages to CMOs, and thus they were not incentivized to make sure their mortgages were unlikely to default.
  • CMOs were incentivized to buy mortgages which were likely to default, since these would only affect their lowest tranche.
  • Many people faked documents in order to get a mortgage, known as a “liar loan”
  • Banks had no way to verify whether people would be able to pay.


Q6) Select TWO key causes of the housing bubble which crashed in 2007:

 

  • Hyper-inflation
  • Fraudulent mortgage lending
  • Over-optimistic mortgage lending
  • Corruption within the government



Q7) During the housing bubble of 2007, which of the following tended to fluctuate with home price index? 

  • The percentage of new homeowners who regretted their decision.
  • The percentage of new homeowners who have been evicted from their home.
  • The percentage of new homeowners who think investing in real estate is a bad long term investment.
  • The percentage of new homeowners who think that investing in real estate is a good long term investment.



Q8) What in 2005 indicated the housing market might be a bubble? 

  • Media was discussing a home-buying mania in the American public.
  • The expected 10 year home price appreciation dropped below the 30 year mortgage rate.
  • Media was discussing how people were no longer purchasing houses.
  • Time magazine predicted that the housing market was a bubble.






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