Which of the Following Is True of Mortgage Interest Rates

question 18

Multiple Choice

Which of the following is true of mortgage interest rates?

• A) Longer-term mortgages have higher interest rates than shorter-term mortgages.
• B) In exchange for points, lenders reduce interest rates on mortgage loans.
• C) Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest payments.
• D) All of the above are true.
• E) Only A and B of the above are true.

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often calculated using the Capital Asset Pricing Model (CAPM).

WACC Calculation

The process of determining a company's Weighted Average Cost of Capital, incorporating the costs of equity, debt, and any other forms of financing.

Semiannually

Occurring twice a year, generally used in the context of payments, interest accruals, or reports.

CAPM

Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets.