2.

) Suppose that you purchase a 182-day Treasury bill for $9,925 that is worth $10,000 when it
matures. The security's annualized yield if held to maturity is about:
A) 1%
B) 1.5%
C) 2%
D) 2.5%
E) 3%

Me: E
Correct: B

Reason: My calculator was correct but I used 92 for n instead of 182 for some reason.

5.) Which of the following are true statements?

(I) Loans made in the federal funds market may be short or long term.
(II) Repurchase agreements (repos) are collateralized by US Treasury securities.
(III) The U.S. Treasury is the largest money market borrower.

A) I and III
B) I, II, and III
C) II only
D) II and III
E) III only

Me: B
Correct: D

Reason: Loans made in the federal funds market can not be short or long term, they can only be
short term. Repurchase agreements (repos) are collateralized by US Treasury securities and the
U.S. Treasury is the largest money market borrower.

7.) Which of the following characteristics of a bond do not change with market interest rates?
(I) YTM
(II) face value

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(III) coupon

A) I and III
B) I, II, and III
C) II only
D) II and III
E) III only

Me: B
Correct: D

Reason: YTM changes with the fluctuations of the market interest rates. The face value and the
coupon of the bond do not.

20.) Which of the following are true statements?

(I) It is difficult for an individual investor to buy and sell ETFs.
(II) ETFs are formed when a basket of securities is purchased, and a stock is created based on
this basket that is traded on an exchange
(III) ETFs are usually actively managed.

A) I and III
B) I, II, and III
C) II only
D) II and III
E) III only

Me: D
Correct: C

Reason: ETFs are not actively managed and are just formed when a basket of securities is
purchased, and a stock is created based on this basket that is traded on an exchange. The first
option is incorrect because individual investors can easily buy and sell ETFs.

21.) During the later part of an amortizing mortgage loan, the lender applies:

A) all of the monthly payment to interest on the loan.

B) all of the monthly payment to the outstanding principal balance.
C) most of the monthly payment to the outstanding principal balance.
D) most of the monthly payment to interest on the loan.

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E) the monthly payment equally to interest on the loan and the outstanding principal balance.

Me: E
Correct: C

Reason: As the mortgage loan is being paid off the principal shrinks after every payment.
decreasing the amount of interest built up at each payment. Towards the end of the amortization,
most of the monthly payment will be to pay off the principal balance.

23.) A 5/1 ARM is most likely to be a mortgage that:

A) Has a variable rate for 5 years, after which the rate becomes fixed.
B) Has a variable rate for 1 year, after which the rate is 5%.
C) Has a fixed rate for 5 years, after which the rate becomes variable.
D) Has a fixed rate for 1 year, after which the rate starts at 5% then begins to vary.

Me: B
Correct: C

Reason: A 5/1 ARM is a type of adjustable rate mortgage loan with a fixed interest rate for the
first 5 years. After this period it will turn into a variable rate.

25.) Which of the following are true statements?

(I) A 15-year mortgage should have a higher rate than a 30-year mortgage.
(II) Two discount points on a $200,000 mortgage represents an up-front charge of $2,000 to the
borrower.
(III) If long-term U.S. Treasury yields rise, you would expect an increase in mortgage rates.

A) I and II
B) I, II, and III
C) II only
D) II and III
E) III only

Me: D
Correct: E

Reason: Long-term U.S.Treasury yields and mortgage rates are directly related so answer E is
true. Option 1 and 2 are wrong and in my initial answer I said 2 was right by after the fact I now
see it is wrong.

26.) Which of the following are true statements?

(I) Private mortgage insurance (PMI) protects the borrower in the event of default.
(II) A mortgage-backed security represents the cash flow rights to a pool of many mortgages.

3
(III) The collateral in a mortgage is typically the real estate that is being financed.

A) I and II
B) I, II, and III
C) II only
D) II and III
E) III only

Me: B
Correct: C

Reason: A mortgage backed security is a security that is bundled together with a lot of
mortgages that can be traded for the cash flows from the bundle.

30.) Which of the following would be expected to cause the dollar to appreciate?
(I) Expectations of a fall in the American price level relative to foreign price levels.
(II) An increase in the interest rate by the Fed.
(III) Expectations that the United States will institute a tariff on South Korean cars.

A) I and II
B) I, II, and III
C) II only
D) II and III
E) III only

Me: D
Correct: B

Reason: A fall in the price level in the United States compared to foriegn levels will cause the
dollar to appreciate. This is the same with an increase in the interest rates ordered by the Fed and
if the U.S puts a tariff on cars from other countries. The dollar will appreciate.

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31.) In January 2022, the annual inflation rate in the United States hit 7.5%, its highest level
since 1982. One effect of this high inflation rate is that it will most likely:

A) tend to make the dollar appreciate

B) tend to make the dollar depreciate
C) have no effect on exchange rates

Me: A
Correct: B

Reason: when inflation is high it actually depreciates a currency. So in 2022, when the inflation
rate was 7.5%, the dollar was depreciating.

35.) Suppose a country wanted to cause their domestic currency to depreciate. One way to do this
would to be for their central bank to perform a(n) _________ foreign exchange intervention in
which they ______ international reserves.

A) unsterilized; buy
B) unsterilized; sell
C) sterilized; buy
D) sterilized; sell

Me: A
Correct: A

Reason: So I put A as the answer but it looked like I marked it out maybe. The reason why A is
correct is because it is an unsterlized foreign exchange intervention when a country buys
international reserves with the goal to depreciate the domestic currency.

38.) In a fixed exchange rate regime, when the domestic currency is undervalued, the central
bank must ________ international reserves and _______ the domestic currency to keep the
exchange rate fixed.

A) sell; buy
B) buy; buy
C) sell; sell
D) buy; sell

Me: B
Correct: D

Reason: When a country's currency is undervalued it is necessary for their central bank to go
ahead and buy international reserves while selling the domestic currency compared to buying it,
this will keep the exchange rate fixed.

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5 things I learned
1. If I am looking at buying a house and only want to own it for less than 6 years, I could
get a 5/1 ARM. The fixed rate may save me money in the short term before I sell.
2. If I am trading forex and I see a country buying up international reserves it is a sign their
currency is undervalued! a good arbitrage opportunity.
3. It is important to understand that when inflation is high, like in 2022, it means our dollars
are being depreciated. This can be a sign you should own another asset to try and fight
inflation.
4. Mortgage backed securities are a bundle of a lot of securities. After rewatching margin
call I see how they can use leverage to trade these puppies like hot potatoes.
5. As the mortgage loan is being paid off the principal shrinks after every payment.
decreasing the amount of interest built up at each payment. Towards the end of the
amortization, most of the monthly payment will be to pay off the principal balance.