A Mortgage-Backed Security Is an Asset That

question 177

Multiple Choice

A mortgage-backed security is an asset that:

• A)only homeowners are allowed to purchase.
• B)provides earnings to its owner based on payments made by people on their home loans.
• C)the Federal Reserve uses to implement monetary policy.
• D)is an important part of the circular-flow diagram.

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Definitions:

Compound Interest

Interest computed on both the original amount of money and on the interest that it has already earned in past periods.

Earnings Rate

The rate at which a company generates income relative to assets, investments, or equity.

Internal Rate of Return

A metric used in financial analysis to estimate the profitability of potential investments, calculated as the rate of return that makes the net present value of all cash flows from a particular project equal to zero.

Compound Interest

A way of calculating interest whereby the charge is based on the initial principal amount as well as on the interest that has accumulated in prior periods of a loan or deposit.