The interest rate on the mortgage-backed security.

Question

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Answer 1

Question

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

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Answer

Answer 2

Question

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

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Answer 3

Question

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

Answer 6

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

Answer 7

Chapter 14, Problem 1TY

To determine

To evaluate: The interest rate on the mortgage-backed security.

Answer 8

Expert Solution & Answer

Answer to Problem 1TY

The interest rate on a mortgage-backed security is higher than the treasury securities.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

With the help of given information, it is clear that the expected default rate on a mortgage-backed security is 4% per year and the corresponding Treasury Security annual interest rate is 3%. Investments in houses or securities depend on the interest rate. If the home mortgage interest rates are less, then the prices of the houses will increase. Therefore, as the purchase of houses is more profitable, investors would prefer doing it then investing in the securities. So, here, in this case, the interest rate on a mortgage-backed security is higher than the treasury securities and is a suitable situation to encourage investment in houses.

Further, if the expected default rate is 8% then the house prices will fall as people won’t be in a position to invest in the purchase of houses. A higher interest rate on a home loan will not attract the customers.

A low mortgage interest rate will always increase house prices.

Answer 12

Economics Concept Introduction

Introduction:

Mortgage-backed security: A mortgage-backed security is supposed to be an investment similar to a bond. The only difference is that this represents a bunch of home loans taken from a bank.

Answer 13

Ch. 14 - Prob. 1TY Ch. 14 - Prob. 2TY Ch. 14 - Prob. 3TY Ch. 14 - Prob. 4TY Ch. 14 - Prob. 1DQ Ch. 14 - Prob. 2DQ Ch. 14 - Prob. 3DQ Ch. 14 - Prob. 4DQ Ch. 14 - Prob. 5DQ Ch. 14 - Prob. 6DQ

The interest rate on the mortgage-backed security.

To evaluate: The interest rate on the mortgage-backed security.

Answer to Problem 1TY

Explanation of Solution

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Chapter 14 Solutions