1. Why are mortgage markets studied as a separate capital market? (LG 7-1)
2. What are the four major categories of mortgages and what percentage of the overall market does each entail? (LG 7-2) .
3. What is the purpose of putting a lien against a piece of prop- erty? (LG 7-3) .
4. Explain the difference between a federally insured mort- gage and a conventional mortgage. (LG 7-3)
5. Explain the difference between a fixed-rate mortgage and an adjustable-rate mortgage. Include a discussion of mortgage borrowers’ versus mortgage lenders’ preferences for each. (LG 7-3)
6. What are the benefits and drawbacks to a mortgage bor- rower when refinancing a mortgage? (LG 7-3)
7. What are “points” on a mortgage? What factors does a mort- gage borrower need to consider when deciding whether or not to take points on a mortgage? (LG 7-3)
8. What is a jumbo mortgage? (LG 7-5)
9. What is a subprime mortgage? What instrumental role did these mortgages play in the recent financial crisis? (LG 7-5)
10. What is an option ARM? What are the different options available with this type of mortgage? (LG 7-5)
11. Why are stock markets the most watched and reported of the financial security markets?
12. What is meant by the statement “common stockholders have a residual claim on the issuing firm’s assets”?
13. Describe the registration process for a new stock issue.
14. What are circuit breakers in the context of stock market trading and volatility? (LG 8-5)
15. What is an ADR? How is an ADR created? (LG 8-9)
16. Why would an investor in a securitized asset who is concerned about prepayment risk prefer a CMO over a pass-through security?
17.What are Circuit Breakers with respect to the New York Stock Exchange? When and why were they first created? How do they decrease the efficiency of the stock market?
18.Why do assets of the same type who positive covariances of returns with each other? Would you expect positive covariances of returns between different types of assets such as returns on Treasury bills, General Electric common stock, and commercial real estate? Why or why not?
19.While the Capital Asset Pricing Model (CAPM) has been widely used to analyze securities and manage portfolios for the past 50 years, it has also been widely criticized as providing too simple a view of risk. Describe three problems in relation to the definition and estimation of the beta measure in the CAPM that would support this criticizm.