1) Which of the following statements is untrue about preferred stock?
A) The issuing corporation has made a firm commitment to make a fix dividend payment to the preferred shareholders in perpetuity
B) Preferred stock investors are considered to be owners of the issuing corporation
C) When the company cannot afford to pay dividends to the preferred stock holders, it writes them an “IOU” for the dividend amount and the accrued interest
D) Preferred stock investors are typically very active in the decision making process of the corporation, voting in annual and extraordinary shareholder meetings
E) Preferred stock trade in organized and over-the-counter stock exchanges, just like common stock.
2) Which of the following statements is true about the debt payment ratio when it comes to mortgage loan applications?
A) For first time home buyers, it is set to 29% of their monthly gross income.
B) For first time home buyers, it is set to 35% of their monthly gross income.
C) With a cutoff of 20% of monthly income after taxes, it is typically only used by loan officers to qualify or disqualify applicants for the loan.
D) For second time home buyers, it is set to 29% of their monthly gross income.
E) Both B and D above are true.
3) Which of the following statements is true about amortized loans?
A) They typically require the debtor to repay the loan and its total interest in N equal periodic payments.
B) They typically require the debtor to make N equal installments to cover interest only and a larger final balloon payment to cover the principal.
C) They are very rarely used in real life.
D) The periodic payments to repay the loan typically start small and grow over time.
E) They allow some individuals to borrow more money than they could obtain through more conservative loan vehicles.
4) When would it make sense for a home owner to refinance his mortgage?
A) When it appears that interest rates are going to remain stable for at least five years.
B) When interest rates have decreased enough to make it worth his while to front the refinancing costs involved.
C) When interest rates have increased enough to make it worth his while to front the refinancing costs involved.
D) When he has accumulated more than 20% of equity in the property.
E) Only when he intends to keep the property for no more than six months.