CBP Retail Banking Products 3

Question 1

Which index is most commonly used as the benchmark for adjustable-rate mortgages in the United States after LIBOR was phased out?

Accepted Answer

Secured Overnight Financing Rate (SOFR)

Answer

SOFR replaced LIBOR as the preferred benchmark for ARM pricing and other floating-rate instruments in the U.S. after LIBOR's discontinuation.

Question 2

A customer purchases a $10,000 CD with a 5% annual interest rate, compounded monthly. What concept explains why the effective annual yield exceeds 5%?

Accepted Answer

Compounding frequency increases the effective annual rate above the nominal rate

Answer

When interest is compounded more frequently than annually, the effective annual rate (EAR) exceeds the stated nominal rate.

Question 3

A 'teaser rate' on a credit card refers to:

Accepted Answer

A temporarily low introductory APR that resets to a higher rate after a promotional period

Answer

Teaser rates are artificially low promotional APRs designed to attract new cardholders, expiring after a defined introductory window.

Question 4

Which retail mortgage product is specifically designed to help low-to-moderate income borrowers and requires a minimum down payment of 3.5%?

Accepted Answer

FHA loan

Answer

FHA loans are government-backed mortgages allowing down payments as low as 3.5%, making homeownership accessible to lower-income and first-time buyers.

Question 5

When a bank offers a 'rate-lock' on a mortgage application, what risk is the bank managing on behalf of the borrower?

Accepted Answer

Interest rate risk — the risk that rates will rise before closing

Answer

A rate-lock guarantees the borrower's mortgage rate will not increase during the lock period, protecting against rising market rates before closing.

(CBP) Certified Banking Professional Practice Test

(CBP) Certified Banking Professional Practice Test

CBP Retail Banking Products 3