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LOS c: Explain how a subprime mortgage borrower is granted a free at-the-money call option on the value of their property.
Q1. An interest-only mortgage with a balloon payment equal to the original principal is best described as:
A) a speculative unit.
B) a free in-the-money call.
C) an at–the-money call with a cost equal to the interest payments.
Q2. William Banner has just been granted a subprime mortgage. In the model where the mortgage is essentially a free at-the-money call option, the strike price of Banner’s “option” is the:
A) value of the property at the time of the mortgage.
B) down payment and origination fees.
C) the cumulative interest of the mortgage.
Q3. One explanation for how a subprime mortgage borrower is granted a free at-the-money call option on the value of their property is that:
A) no down payment was required although there were still origination fees to obtain the mortgage.
B) no down payment or origination fees were required to obtain the mortgage.
C) no origination fees were required but there was still a down payment required to obtain the mortgage.
Q4. Subprime mortgage borrowers were granted a free at-the-money call option on the value of their property because:
A) adding a long call position on REITs was a usual deal sweetener.
B) they did not put any money down, earned a profit if the home value increased but lost nothing if the home value decreased.
C) adding a long call position on a real-estate index was a usual deal sweetener. | 
发表于 2009-3-16 17:37
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