Estate General, generic justification of real estate an investment, including the concept of leverage and obviously the tax advantages. The chapter discussion of the demographic issue (Fig 2) and how that explained torrid growth in the past but perhaps not so much in the future. All types of loans that were identified in lecture or reading, their properties and pros and cons. (No questions about identity theft and credit reports if that gets posted – that was just for your benefit). The hazards or hidden traps of certain classes of ARMs, especially the variety that were used during the period 2004-2007 – staircases, negative amortization, teaser rates, all that. Current general qualifying criteria. Not required to know complex leverage formulas or formula for calculating monthly payment or max loan qualification. The Crash What were some of the warning signs that appeared before 2007? (Or what would you look for in the future if you suspected that this was about to happen again)? You only need to know two things from the complex description of the way mortgages were structured – that was a little advanced for this class: The general structure of a Collateralized Debt Obligation and CMO. The structure of the CMO pass-thru tranche, why the senior tranche was rated AAA, and why it failed (the slide labeled Know this). You do not need to understand the Citigroup example – it is too complicated. Final exam review About the exam in general Exam covers modules 6 and 7 (maybe 8 on TH) Exam consists of 2 parts: (1) in class on Thursday Dec 13 at class time, worth 150 points (slightly shorter than previous exams), (2) a take-home exam worth 50 points that will be due at Parsons 1261, my office, by 12:00 Noon on Wednesday, December 19th. The take-home exam will be posted online right about the time of the in-class exam. As always there will be a matching component largely or entirely based upon terms, including all italicized words in the material that I wrote and the general real estate terms. Remember that this review was prepared before I made up the exam, so it may not fully indicate all areas of interest, although it will certainly indicate most of them. The Role of Reading and HW on the exam The Lost Bank Remember that you have been promised that I will ask one or two questions on the in-class final based upon your reading of this book from 5 questions already provided to you, including without doubt Question 5, from this list of guidance questions: http://www2.hmc.edu/~evans/Lost BankQuestions.pdf Homework Remember that the homework assigned in Module 6, Calculating Settlement Prices for Futures Contracts, which you should have already completed for steps 1 and 2, will be part of your take-home exam, where you have to calculate final settlement and it’s impact upon your cash account given prices on the day you complete your take-home exam. If you have not yet completed assignment 7, it is too late now. You will have to get no credit for that part of the final. The homework assignedfin Module 7, Calculating Mortgage Payments and Calculating Maximim Loan Size, Given Income, has a question at the end that will likely be asked, possibly verbatim, on the in-class exam. The TH exam There will be at least one other question of the take-home portion of the final exam for which you don’t really need to study. Based upon criteria that I establish, I am going to ask you to design a futures contract. The TH final may also ask another short essay question about risk and the VIX or possibly your new general investment strategy, possibly a choice between two questions. Futures are not likely to be part of your investment portfolio if you are simply a long-term retirement investor, and so are not a major investment category like stocks, bonds, ETPs, mutual funds, and real estate (or even options). However, futures are creeping into long-term conservative investment categories because of their growing importance in ETPs like USO, UNG, and various ETNs. Given that, we focus on three categories: Settlement: absolutely everything about settlement, what it is, how it works and how it affects pricing at delivery. Possible a settlement problem. Possibly more than one question. Hedging: how normally you would hedge but why you may not be able to hedge, say long, in an inflationary environment and the role played by contango and/or backwardation in this context Futures and ETPs: how futures are used to collateralize ETPs like USO and VXX and given that, why they wont always track when you most want them to and again, the role played by contango in that – this is complicated and difficult, but it will be on the exam. About futures contracts About real estate and the crash Risk and the VIX – no in-class exam question, maybe on TH Real Estate General, generic justification of real estate an investment, including the concept of leverage and obviously the tax advantages. The chapter discussion of the demographic issue (Fig 2) and how that explained torrid growth in the past but perhaps not so much in the future. All types of loans that were identified in lecture or reading, their properties and pros and cons. (No questions about identity theft and credit reports if that gets posted – that was just for your benefit). The hazards or hidden traps of certain classes of ARMs, especially the variety that were used during the period 2004-2007 – staircases, negative amortization, teaser rates, all that. Current general qualifying criteria. Not required to know complex leverage formulas or formula for calculating monthly payment or max loan qualification. The Crash What were some of the warning signs that appeared before 2007? (Or what would you look for in the future if you suspected that this was about to happen again)? You only need to know two things from the complex description of the way mortgages were structured – that was a little advanced for this class: The general structure of a Collateralized Debt Obligation and CMO. The structure of the CMO pass-thru tranche, why the senior tranche was rated AAA, and why it failed (the slide labeled Know this). You do not need to understand the Citigroup example – it is too complicated.