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fundamentals of investments valuation

Fundamentals Of Investments Valuation And Management 9th Edition Bradford Jordan, Thomas Miller, Steve Dolvin - Solutions

SMBS Go to the mortgage-backed security section at fanniemae.com. Find the SMBS section.What is an SMBS? How do they work? Is an SMBS a suitable investment for most investors?
Fannie Mae Go to the mortgage-backed security section at fanniemae.com. What were the longest-term bonds recently issued by Fannie Mae? What are the coupon rates? What are the coupon rates on the
Depository Trust and Clearing Corporation (DTCC) Go to dtcc.com. What is the role of the DTCC? What par value of mortgage-backed securities was cleared in each of the last three months?
Mr. Blanda tells Mr. Houston to recalculate the SMM for Pool 3 based on 200 PSA rather than the current 100 PSA. The revised SMM is closest to:a. .36 percent.b. .55 percent.c. .97 percent.
Mr. Blanda instructs Mr. Houston to calculate the weighted average coupon rate (WAC) for the mortgage pools. Which of the following is closest to the WAC?a. 7.28 percentb. 7.78 percentc. 8.01 percent
Mr. Houston made a mistake in his research about the nature of mortgage loans. Which of the following statements regarding mortgage loans as compared to straight bonds is least accurate?a. Servicing
Regarding conditional prepayment rates (CPRs) and single monthly mortality (SMM) rates, which of the following is most accurate?a. SMM is computed from the CPR to compute monthly prepayments.b. SMM
Mortgage Balances (LO1, CFA1) A 30-year mortgage has an annual interest rate of 6.1 percent and a loan amount of $270,000. What is the remaining balance at the 180th payment?
Mortgage Amortization (LO1, CFA1) A 20-year mortgage has an annual interest rate of 4.9 percent and a loan amount of $250,000. What are the interest and principal for the 120th payment?
Mortgage Payments (LO1, CFA1) A 30-year mortgage has an annual interest rate of 5.6 percent and a loan amount of $210,000. What are the monthly mortgage payments?
SMMs (LO3, CFA2) In Problem 16, what is the single monthly mortality for seasoned 50 PSA, 200 PSA, and 400 PSA mortgages? How do you interpret these numbers?
CPRs (LO3, CFA2) What are the conditional prepayment rates for seasoned 50 PSA, 200 PSA, and 400 PSA mortgages if the 100 PSA benchmark is 3 percent per year? How do you interpret these numbers?
Mortgage Prepayments (LO2, CFA2) A homeowner took out a 30-year fixed-rate mortgage of$120,000. The mortgage was taken out 15 years ago at a rate of 7.95 percent. If the homeowner refinances, the
Mortgage Prepayments (LO2, CFA2) A homeowner took out a 30-year fixed-rate mortgage of$220,000. The mortgage was taken out 10 years ago at a rate of 7.20 percent. If the homeowner refinances, the
Prepayments (LO3, CFA1) Consider a 30-year, $230,000 mortgage with a rate of 6.90 percent.Five years into the mortgage, rates have fallen to 5.70 percent. Suppose the transaction cost of obtaining
Prepayments (LO3, CFA1) Consider a 25-year, $350,000 mortgage with a rate of 7.25 percent.Ten years into the mortgage, rates have fallen to 5.4 percent. What would be the monthly saving to a
Prepayments (LO3, CFA1) Consider a 30-year, $160,000 mortgage with a rate of 6 percent.Five years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner
Mortgage Balances (LO1, CFA1) Consider a 30-year, $145,000 mortgage with a 6.1 percent interest rate. After eight years, the borrower (the mortgage issuer) pays it off. How much will the lender
Mortgage Balances (LO1, CFA1) A homeowner takes a 15-year fixed-rate mortgage for$140,000 at 7.6 percent. After seven years, the homeowner sells the house and pays off the remaining principal. How
Mortgage Interest (LO1, CFA1) A 30-year, $250,000 mortgage has a rate of 5.4 percent.What are the interest and principal portions in the first payment? In the second?
IO and PO Values (LO4, CFA2) A $100,000 GNMA passthrough bond issue has a value of $107,680. The value of the interest-only payments is $52,973. What is the value of the principal-only payment?
CPR (LO4, CFA2) What is the conditional prepayment rate if the single monthly mortality is .426 percent?
SMM (LO4, CFA2) What is the single monthly mortality assuming the conditional prepayment rate is 7 percent?
Mortgage Balances (LO1, CFA1) You have decided to buy a house. You can get a mortgage rate of 5.25 percent, and you want your payments to be $1,500 or less. How much can you borrow on a 30-year
Mortgage Payments (LO1, CFA1) A homeowner takes out a $417,000, 30-year fixed-rate mortgage at a rate of 5.2 percent. What are the monthly mortgage payments?
Mortgage Balances (LO1, CFA1) If a mortgage has monthly payments of $1,240, a life of 30 years, and a rate of 4.5 percent per year, what is the mortgage amount?
Mortgage Payments (LO1, CFA1) What is the monthly payment on a 30-year fixed-rate mortgage if the original balance is $315,000 and the rate is 4.9 percent?
Duration and MBSs (LO4, CFA2) Why is Macaulay duration an inadequate measure of interest rate risk for an MBS? Why is effective duration a better measure of interest rate risk for an MBS?
PACs (LO4, CFA2) Explain in general terms how a protected amortization class (or PAC)CMO works.
Sequential CMOs (LO4, CFA2) Consider a single whole bond sequential CMO. It has two tranches, an A-tranche and a Z-tranche. Explain how the payments are allocated to the two tranches. Which tranche
IO and PO Strips (LO4, CFA2) Which has greater interest rate risk, an IO or a PO strip?
IO and PO Strips (LO4, CFA4) What are IO and PO strips? Assuming interest rates never change, which is riskier?
CMOs (LO4, CFA2) What is a collateralized mortgage obligation? Why do they exist? What are three popular types?
Prepayments (LO3, CFA2) Mortgage pools also suffer from defaults. Explain how defaults are handled in a fully modified mortgage pool. In the case of a fully modified mortgage pool, explain why
Prepayments (LO3, CFA2) Evaluate the following argument: “Prepayment is not a risk to mortgage investors because prepayment actually means that the investor is paid both in full and ahead of
Prepayments (LO3, CFA2) Explain why the right to prepay a mortgage is similar to the call feature contained in most corporate bonds.
Prepayments (LO3, CFA2) What are some of the reasons that mortgages are paid off early?Under what circumstances are mortgage prepayments likely to rise sharply? Explain.
Mortgage Pools (LO4, CFA2) What does it mean for a mortgage pool to be fully modified?
Ginnie, Fannie, and Freddie (LO2, CFA2) From an investor’s point of view, what is the difference between mortgage pools backed by GNMA, FNMA, and FHLMC?
Mortgage Payments (LO1, CFA2) All else the same, will the payments be higher on a 15-year mortgage or a 30-year mortgage? Why?
Mortgage Securitization (LO4, CFA2) How does mortgage securitization benefit mortgage originators?
Mortgage Securitization (LO4, CFA2) How does mortgage securitization benefit borrowers?
MBS Duration (LO4, CFA2) The most important difference between effective duration and Macaulay duration for a mortgage passthrough security is that:a. Macaulay duration is easier to calculate.b.
MBS Duration (LO4, CFA3) Which of the following most accurately measures interest rate sensitivity for mortgage passthrough securities with prepayment risk?a. Static durationb. Effective durationc.
MBS Duration (LO4, CFA2) Higher prepayments have what impact on the effective duration of a mortgage passthrough security?a. They decrease effective duration for all maturity mortgages.b. They
Collateralized Mortgage Obligations (LO4, CFA2) For a given mortgage pool, which of the following CMOs based on that pool is most likely to increase in price when market interest rates increase?a.
Prepayments (LO3, CFA2) A bond analyst at Omnipotent Bank (OB) notices that the prepayment experience on his holdings of high-coupon GNMA issues has been moving sharply higher.What does this
GNMA Bonds (LO2, CFA2) Which of the following should a bond portfolio manager purchase if the manager is looking for mortgage-backed securities that would perform best during a period of rising
GNMA Bonds (LO2, CFA2) Which of the following is not a source of risk for GNMA mortgage pool investors?a. Prepayment riskb. Default riskc. Interest rate riskd. Reinvestment risk
GNMA Bonds (LO2, CFA2) Mortgages in GNMA pools are said to be fully modified because GNMA guarantees bondholders which of the following?a. A minimum rate of return on their investmentb. A modified
Fixed-Rate Mortgages (LO1, CFA2) Which of the following mortgages will have the largest remaining balance after 180 monthly payments (no calculation necessary)?a. 30-year, 8 percentb. 30-year, 10
Fixed-Rate Mortgages (LO1, CFA2) Which of the following mortgages will pay the smallest total interest over the life of the mortgage (no calculation necessary)?a. 30-year, 8 percentb. 30-year, 10
Fixed-Rate Mortgages (LO1, CFA2) Which of the following mortgages has the lowest monthly payment (no calculation necessary)?a. 30-year, 8 percentb. 30-year, 10 percentc. 15-year, 8 percentd.
Fixed-Rate Mortgages (LO1, CFA2) The remaining balance on a 30-year, $100,000 mortgage loan financed at 8 percent after the 180th payment is (no calculation necessary):a. $100,000b. $50,000c.
Fixed-Rate Mortgages (LO1, CFA2) The principal reduction component of a monthly payment for a fixed-rate mortgage is:a. Highest during the first year of the mortgage.b. Highest during the middle
Fixed-Rate Mortgages (LO1, CFA2) The interest component of a monthly payment for a fixedrate mortgage is:a. Highest during the first year of the mortgage.b. Highest during the middle year of the
Fixed-Rate Mortgages (LO1, CFA2) Which of the following statements about fixed-rate mortgages is false?a. Fifteen-year mortgages have higher monthly payments than 30-year mortgages.b. Scheduled
Mortgage Prepayments (LO3, CFA1) Consider a 15-year, $210,000 mortgage with a 7 percent interest rate. After 10 years, the borrower (the mortgage issuer) pays it off. How much will the lender
Mortgage Payments (LO1, CFA1) What are the monthly payments on a 30-year, $150,000 mortgage if the mortgage rate is 6 percent? What portion of the first payment is interest? Principal?
How might a large change in market interest rates cause mortgage pool prepayments to move outside a PAC collar far enough and long enough to interfere with an originally stated PAC bond cash flow
Figures 21.6A and 21.6B assume a PAC 100/300 bond based on a pool of fully modified 30-year fixed-rate mortgages. What would these figures look like for a PAC 50/300 and a PAC 100/500 bond?
A PAC 100/300 bond based on a pool of fully modified 30-year fixed-rate mortgages switches payment schedules after 103 months. Would switching occur earlier or later for a PAC 50/300 bond? For a PAC
While A-, B-, and C-tranche principal is being paid down, Z-tranche interest is used to acquire principal for the Z-tranche. What is the growth rate of Z-tranche principal during this period?
Figures 21.5A and 21.5B assume a 100 PSA prepayment schedule. How would these figures change for a 200 PSA prepayment schedule or a 50 PSA prepayment schedule?
Suppose a $100,000 mortgage financed at 9 percent (.75 percent monthly) is paid off in the first month after issuance. In this case, what are the cash flows to an IO strip and a PO strip from this
Why is it important for portfolio managers to know by how much a change in interest rates will affect mortgage-backed bond prices?
Why is it important for portfolio managers to know by how much a change in interest rates will affect mortgage prepayments?
Why might cash flow uncertainty be less of a problem for investors with a very long-term investment horizon?
GNMA bond investors face significant cash flow uncertainty. Why might cash flow uncertainty be a problem for many portfolio managers?
Referring to Figure 21.2, what is the CPR for an unseasoned 200 PSA mortgage in month 20 of the mortgage?
Referring to Figure 21.2, what is the CPR for an unseasoned 100 PSA mortgage in month 20 of the mortgage?
Referring to Figure 21.2, what are the CPRs for seasoned 50 PSA, 100 PSA, and 200 PSA mortgages?
Look up prices for Freddie Mac and Fannie Mae common stock under their ticker symbols FMCC and FNMA online at finance.yahoo.com.
What is the remaining balance on this mortgage after 100 payments (i.e., after 8 years and 4 months)? After 200 payments?
Suppose a 30-year, $100,000 mortgage is financed at an annual interest rate of 4 percent. What is the interest and principal payments for the 120th payment?The 240th payment?
Industry Analysis Visit msci.com/gics and click on “GICS Structure & Sub-Industry Definitions.”Find the code for the Coal and Consumable Fuels sub-industry
Industry Analysis Use the heat map at finviz.com/map.ashx to determine which sectors are currently the strongest and weakest in the S&P 500.
Exchange Rates Go to xe.com and find the current euro/dollar exchange rate. If you had $75,000, how many euros would that be worth at the current exchange rate?
Regarding Ms. Smith’s and Ms. Van Eaton’s statements made about the competitive strategy of the South Winery:a. Both are incorrect.b. Both are correct.c. Only one is correct.
Ms. Van Eaton tells Ms. Smith that she likes the fact that the conclusions in her report are backed up with facts, but she tells her that she is concerned about the section concerning the bargaining
Ms. Smith would likely categorize the French wine industry into which of the following life-cycle phases?a. Decline phaseb. Pioneer phasec. Mature phase
If the French home currency were to greatly appreciate in value compared to the English currency, what is the likely impact on the East Winery?a. It will make the firm less competitive in the English
Exchange Rates (LO2, CFA5) You are a U.S. investor who invested $420,000 in India five years ago.Assume that your investment gained 7 percent per year. If the exchange rate moved from 70.1 rupees per
GDP Growth (LO2, CFA2) Assume the following. In 2008, the U.S. had real GDP of $15.6 trillion and the CPI was at 90.52. At the end of 2018, real GDP in the U.S. was $18.4 trillion and the CPI was at
Exchange Rates (LO2, CFA5) Suppose you are a U.S. investor who is planning to invest $785,000 in Mexico. Your Mexican investment gains 10 percent. If the exchange rate moves from 12.2 pesos per
Exchange Rates (LO2, CFA5) In Problem 13, what would the total return be if the ending exchange rate were 88.65¥/$? What does your answer tell you about the importance of currency fluctuations?
Exchange Rates (LO2, CFA5) Suppose you are a U.S. investor who is planning to invest $125,000 in Japan. You do so at a starting exchange rate of 84.28¥/$. Your Japanese investment gains 7 percent,
Exchange Rates (LO2, CFA5) Suppose you want to convert U.S. dollars into Indian rupees. If you have$1,500,000 and the exchange rate is $.0245 per rupee, how many rupees will you receive in the
Real vs. Nominal (LO2, CFA2) Using the information from Problem 10, calculate the inflation rates and approximate real GDP growth rates for 2018 and 2019.
GDP Growth (LO2, CFA2) Consider the following information on GDP and CPI for an economy over the last three years:
Inflation (LO2, CFA2) An analyst gathered the following year-end price level data for an economy:
Unemployment (LO2, CFA2) Assume there are 300 million people in the United States, 155 million of whom make up the labor force. If 10 million people are unemployed, what is the unemployment rate?
Real vs. Nominal (LO2, CFA1) If nominal GDP was reported at $1,425.68 billion and inflation was 4.3 percent, what is the level of real GDP for the period?
Real vs. Nominal (LO2, CFA1) If nominal GDP was reported at $124.9 billion and real GDP was reported at $122.8 billion, what was the inflation rate for the period?
Real vs. Nominal (LO2, CFA2) If wages grew 3.2 percent, but inflation was 2.8 percent, what was the approximate real increase in wages?
Inflation (LO2, CFA2) The CPI for this year was reported at 154.65. If inflation was 2.2 percent, what must the CPI have been last year?
Inflation (LO2, CFA2) Assume the CPI increases from 123.9 to 125.6 over the period. What is the inflation rate implied by this CPI change over this period? What does this value indicate?
Money Multiplier (LO3, CFA4) Assume that the Federal Reserve injects $60 billion into the financial system. If the money supply increases by a maximum of $300 billion, what must the reserve
Money Multiplier (LO3, CFA4) Assume that the Federal Reserve injects $2 billion into the financial system. If the reserve requirement is 18 percent, what is the maximum increase in money supply?
Fiscal Policy (LO3, CFA4) Briefly explain why a high level of national debt may be detrimental for economic growth.

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