The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. If a bank had capital of 10 percent when the Fed began raising rates and has no loans at risk of default, under what circumstances will its capital position be compromised? Please be specific.
7. The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. If
a bank had capital of 10 percent when the Fed began raising rates and has no loans at risk of
default, under what circumstances will its capital position be compromised? Please be specific.
8. How do rising interest rates affect the size of real estate loans that lenders will advance?
Again, be specific.
9. Mortgage rates have risen by about 4 percent over the past year. Does that mean that the
acceptable minimum appreciation rate for looking at owner housing relative to renting has
risen by 4 percent? Why or why not? (Hint: think about our analysis of the buy-rent decision).
10. You are evaluating a CMBS. Beyond the standard metrics (i.e., LTV, DCI, etc.), name two
things to consider in evaluating the security.
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