1. The securitization of mortgages creates value by eliminating liquidity risk. This value is generally added to the mortgage pool in the form of more cash flows. a. True b. False 52. Slower mortgage prepayment will generate more total interest paid on the mortgage pol. a. True b. False mortgage-backed security is one in which the investor has the right to obtain only the interest payments from a pool of mortgages (IO) or only the principal payments from a pool of mortgages (PO). Increasing prepayment will cause the present value of principal to be greater and the present value of the interest to be less than otherwise if the market interest rate is up a. True b. False Use the following information to answer the next 4 questions. A price level adjusted mortgage (PLAM) is made with the following terms: Loan amount $80,000, Initial interest rate 3.00%, Loan term 30 years, Points 2.0 points, and payments are to be adjusted at the beginning of each year Assuming inflation is expected to increase at the rate of 6.0% per year for the next 3 years and the lo will be prepaid at end of year 3 without any prepayment penalty: 54. What would the adjusted loan balance be at the end of the second year? a. $81,205.24 c. $83,557.26 e. $84,084.97 b. $83,029.55 d. $86,077.55 55. The monthly payment at the beginning of the third year is: a. $371.39 c. $458.56 e. $303.18 b. $534.80 d. $378.97 pFinEXMsu07 Sp18 439 NoCh16Tax