1)

If a default occurs in a non-recourse commercial mortgage-backed security (CMBS), the lender will most likely:

a.

recover prepayment penalty points paid by the borrower to offset losses.

b.

use only the proceeds received from the sale of the property to recover losses.

c.

initiate a claim against the borrower for any shortfall resulting from the sale of the property.

2)

A security

a.

is the price paid for the usage of funds.

b.

is a claim on the issuers future income.

c.

is a claim or price of property that is subject to ownership.

d.

promises that payments will be made periodically for a specified period of time.

3)

According to the expectations theory of the term structure,

a.

(C) when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future.

b.

all the answers are true.

c.

(B) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future.

d.

(A) yield curves should be equally likely to slope downward as to slope upward.

e.

only (A) and (B).

3)

Which of the following statements are true?

a.

(B) An increase in tax rates will increase the demand for Treasury bonds, lowering their interest rates.

b.

(C) Interest rates on municipal bonds will be higher than on comparable bonds without the tax exemption.

c.

Only (A) and (B).

d.

(A) Because coupon payments on municipal bonds are exempt from federal income tax, the expected after-tax return on them will be higher for individuals in higher income tax brackets.

4)

The second-order effect on a bonds percentage price change given a change in yield-to-maturity can be best described as:

a.

yield volatility.

b.

convexity.

c.

duration.