1.Which of the following is the best explanation of a conditional prepayment rate? The conditional prepayment rate is the:

A)   realized prepayment rate of a pool.

B)   percentage of the total liability that each borrower prepays.

C)   percentage of the total liability that a borrower prepays conditional on the fact that he prepays.

D)   prepayment rate assumed for a pool based on the characteristics of the pool and the economic environment.

2.Regarding prepayment rates, which of the following statements is FALSE?

A)   The conditional prepayment rate (CPR) is the assumed rate at which the mortgage pool balance is prepaid.

B)   The conditional prepayment rate (CPR) depends on characteristics such as past prepayment, along with the current and expected economic state of affairs.

C)   The conditional prepayment rate (CPR) is the actual rate at which the mortgage pool balance is prepaid.

D)   If the conditional prepayment rate (CPR) is converted into a monthly rate, it is called the single monthly mortality rate (SMM).

3.Which of the following is TRUE for a conditional prepayment rate? A conditional prepayment rate is the:

A)   annual prepayment expressed as a percentage of the amount at the beginning of the period.

B)   monthly prepayment expressed as a percentage of the at the beginning of the period.

C)   monthly prepayment expressed as a percentage of the at the end of the period.

D)   annual prepayment expressed as a percentage of the amount at the end of the period.

4.The Public Securities Association (PSA) prepayment benchmark assumes that:

A)   the monthly prepayment rate for a mortgage pool decreases as it ages or becomes seasoned.

B)   the monthly prepayment rate for a mortgage pool increases as it ages or becomes seasoned.

C)   the PSA benchmark is referred to as 30-year PSA.

D)   there is a linear relationship between conditional prepayment rate (CPR) and the single monthly mortality rate (SMM).

5.What is the relation between the PSA prepayment benchmark and the conditional prepayment rate (CPR)? The PSA prepayment benchmark is:

A)   not related to the CPR.

B)   a weighted average of the CPR.

C)   expressed as an annual series of CPR's.

D)   expressed as a monthly series of CPR's.

6.Which of the following is the best explanation of a single-monthly mortality rate? The single-monthly mortality rate is the:

A)   assumed monthly prepayment rate for a pool.

B)   realized monthly prepayment rate for a pool.

C)   realized monthly prepayment rate for each individual loan.

D)   assumed monthly prepayment rate for each individual loan.

7.Which of the following is a CORRECT description of the Public Securities Association (PSA) prepayment benchmark? The PSA prepayment benchmark assumes that prepayment rates are:

A)   low for newly originated mortgages and then will speed up as the mortgages season.

B)   low during high-interest rate periods and high during low-interest rate periods.

C)   high during high-interest rate periods and low during low-interest rate periods.

D)   high for newly originated mortgages and then will lower as the mortgages become seasoned.