DOCSLIB.ORG

Rural Housing Service, USDA § 3555.10

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Rural Housing Service, USDA § 3555.10 Pt. 3555 7 CFR Ch. XXXV (1–1–20 Edition) PART 3555—GUARANTEED RURAL 3555.250 OMB control number. HOUSING PROGRAM Subpart F—Servicing Performing Loans Subpart A—General 3555.251 Servicing responsibility. 3555.252 Required servicing actions. Sec. 3555.253 Late payment charges. 3555.1 Applicability. 3555.254 Final payments. 3555.2 Purpose. 3555.255 Borrower actions requiring lender 3555.3 Civil rights. approval. 3555.4 Mediation and appeals. 3555.256 Transfer and assumptions. 3555.5 Environmental requirements. 3555.257 Unauthorized assistance. 3555.6 State and local law. 3555.258–3555.299 [Reserved] 3555.7 Exception authority. 3555.300 OMB control number 3555.8 Conflict of interest. 3555.9 Enforcement. Subpart G—Servicing Non-Performing 3555.10 Definitions and abbreviations. Loans 3555.11–3555.49 [Reserved] 3555.50 OMB control number. 3555.301 General servicing techniques. 3555.302 Protective advances. Subpart B—Lender Participation 3555.303 Traditional servicing options. 3555.304 Special servicing options. 3555.51 Lender eligibility. 3555.305 Voluntary liquidation. 3555.52 Lender approval. 3555.306 Liquidation. 3555.53 Contracting for loan origination. 3555.307 Assistance in natural disasters. 3555.54 Sale of loans to approved lenders. 3555.308–3555.349 [Reserved] 3555.55–3555.99 [Reserved] 3555.350 OMB control number. 3555.100 OMB control number. Subpart H—Collecting on the Guarantee. Subpart C—Loan Requirements 3555.351 Loan guarantee limits. 3555.101 Loan purposes. 3555.352 Loss covered by the guarantee. 3555.102 Loan restrictions. 3555.353 Net recovery value. 3555.103 Maximum loan amount. 3554.354 Loss claim procedures. 3555.104 Loan terms. 3555.355 Reducing or denying the claim. 3555.105 Combination construction and per- 3555.356 Future recovery. manent loans. 3555.357–3555.399 [Reserved] 3555.106 [Reserved] 3555.400 OMB control number. 3555.107 Application for and issuance of the loan guarantee. AUTHORITY: 5 U.S.C. 301; 42 U.S.C. 1471 et 3555.108 Full faith and credit. seq. 3555.109 Qualified mortgage. SOURCE: 78 FR 73941, December 9, 2013, un- 3555.110–3555.149 [Reserved] less otherwise noted. 3555.150 OMB control number. Subpart D—Underwriting the Applicant. Subpart A—General 3555.151 Eligibility requirements. § 3555.1 Applicability. 3555.152 Calculation of income and assets. 3555.153–3555.199 [Reserved] This part sets forth policies for the 3555.200 OMB control number. Single Family Housing Guaranteed Loan Program (SFHGLP) administered Subpart E—Underwriting the Property by USDA Rural Development. It ad- dresses the requirements of section 3555.201 Site requirements. 502(h) of the Housing Act of 1949, as 3555.202 Dwelling requirements. 3555.203 Ownership requirements. amended, and includes policies regard- 3555.204 Security requirements. ing originating, servicing, holding and 3555.205 Special requirements for condomin- liquidating SFHGLP loans. Any provi- iums. sion regarding the expenditure of funds 3555.206 Special requirements for commu- under this part is contingent upon the nity land trusts. availability of funds. 3555.207 Special requirements for Planned Unit Developments (PUDs). § 3555.2 Purpose. 3555.208 Special requirements for manufac- tured homes. (a) General. The purpose of the 3555.209 Rural Energy Plus loans. SFHGLP is to provide low- and mod- 3555.210–3555.249 [Reserved] erate-income persons who will live in 454 VerDate Sep<11>2014 14:32 May 19, 2020 Jkt 250026 PO 00000 Frm 00464 Fmt 8010 Sfmt 8010 Y:\SGML\250026.XXX 250026 rmajette on DSKBCKNHB2PROD with CFR Rural Housing Service, USDA § 3555.5 rural areas with an opportunity to own § 3555.4 Mediation and appeals. decent, safe and sanitary dwellings and Whenever Rural Development makes related facilities. The SFHGLP offers a decision that will adversely affect a applicants without sufficient resources participant, the participant may pro- to provide the necessary housing on ceed with alternative dispute resolu- their own account, and unable to se- tion including mediation and a USDA cure the credit necessary for such National Appeals Division hearing in housing from other sources upon terms accordance with 7 CFR parts 1 and 11. and conditions, which the applicant The participant also may request an can reasonably be expected to fulfill informal review of the adverse decision without the guarantee, an opportunity made by Rural Development. Except to acquire, build, rehabilitate, im- when the adverse decision applies to a prove, or relocate dwellings in rural loss claim, the applicant or borrower areas. and the lender may participate in the (b) Demonstration programs. Rural De- appeal process. Adverse decisions made velopment may authorize limited dem- by the lender cannot be appealed unless onstration programs as allowed by law. concurrence by Rural Development was The objective of these demonstration required by this subpart and obtained programs will be to test new ap- by the lender. proaches to offering housing under the statutory authority granted to the § 3555.5 Environmental requirements. Secretary. Therefore, such demonstra- (a) Policy. Rural Development will tion programs may not be consistent consider environmental quality, eco- with all of the provisions contained in nomic, social, and other relevant fac- this part. However, any statutory tors in program development and deci- SFHGLP requirements will remain in sion-making processes. Rural Develop- effect. ment will take into account potential environmental impacts of proposed § 3555.3 Civil rights. projects by working with applicants, Rural Development, lenders, and other Federal agencies, American In- their agents must administer the pro- dian tribes, State and local govern- gram fairly, and in accordance with ments, and interested citizens and or- both the letter and the spirit of all ganizations in order to formulate ac- equal opportunity, equal credit oppor- tions that advance the program’s goals tunity and fair housing legislation, and in a manner that will protect environ- applicable executive orders. Loan guar- mental quality. antees, services, and benefits provided (b) Regulatory references. Loan proc- under this part shall not be denied to essing or servicing actions taken under any person based on race, color, na- this part must comply with the envi- tional origin, sex, religion, marital sta- ronmental review requirements in ac- tus, familial status, age (provided the cordance with 7 CFR part 1970, and 7 applicant has the capacity to enter CFR part 1924, which addresses lead- into a binding contract), handicap, re- based paint. ceipt of income from public assistance, (c) Agency responsibilities. Rural De- sexual orientation, or because the ap- velopment is responsible for compli- plicant has, in good faith, exercised ance with all applicable environmental any right under the Consumer Credit regulations and statutes. Protection Act (15 U.S.C. 1601 et seq.). (d) Lender and loan applicant respon- All activities under this part shall be sibilities. (1) Lenders must use due dili- accomplished in accordance with the gence in regard to potential environ- Fair Housing Act (42 U.S.C. 3601–3620), mental hazards to ensure the property the Equal Credit Opportunity Act (15 is decent, safe and sanitary and of suf- U.S.C. 1691), and Executive Order 11063 ficient value to adequately secure the as amended by Executive Order 12259, loan. The level of due diligence review as applicable. Rural Development’s to determine potential environmental civil rights compliance requirements hazards must be equivalent to the are provided in 7 CFR part 1901, subpart standards established by Fannie Mae, E. Freddie Mac, FHA, or the VA. 455 VerDate Sep<11>2014 14:32 May 19, 2020 Jkt 250026 PO 00000 Frm 00465 Fmt 8010 Sfmt 8010 Y:\SGML\250026.XXX 250026 rmajette on DSKBCKNHB2PROD with CFR § 3555.6 7 CFR Ch. XXXV (1–1–20 Edition) (2) Mortgage loan transactions will meets the requirements of 42 U.S.C. be subject to the requirements of the 4012a (b)(1)(A). 1994 National Flood Insurance Reform (7) Rural Development will not guar- Act to determine if the dwelling is lo- antee loans for new or proposed homes cated in a Special Flood Hazard Area in an SFHA unless the lender obtains a (SFHA). final Letter of Map Amendment (3) On an as needed basis, lenders and (LOMA) or a final Letter of Map Revi- loan applicants will assist Rural Devel- sion (LOMR) that removes the property opment in obtaining such information from the SFHA, or performs an alter- as Rural Development needs to com- natives analysis in compliance with plete its environmental review and to the Agencies National Environmental cooperate in the resolution of environ- Policy Act regulation and obtains a mental problems. FEMA elevation certificate that shows that the lowest floor (including base- (4) Lenders will become familiar with ment) of the dwelling and all related Agency environmental requirements, building improvements are built at or so they can advise applicants and re- above the 100-year flood plain elevation duce the probability of unacceptable in compliance with the NFIP. applications being submitted to Rural Development. [78 FR 73941, Dec. 9, 2013, as amended at 81 (5) The lender must comply with Fed- FR 6428, Feb. 8, 2016; 81 FR 11048, Mar. 2, 2016] erally mandated flood insurance pur- § 3555.6 State and local law. chase requirements. Existing dwellings in a SFHA are not eligible under the Lenders will comply with applicable SFHGLP unless flood insurance State and local laws and regulations, through the FEMA National Flood In- including the laws of American Indian surance Program (NFIP) is available tribes. Supplemental guidance will be issued in the case of any conflict with for the community and flood insurance, or significant differences from provi- whether NFIP, ‘‘write your own,’’ or sions of this part. private flood insurance, is purchased by the borrower. The lender will re- § 3555.7 Exception authority. quire the borrower to obtain, and The Administrator of the Agency, or maintain for the term of the mortgage, a designee, may make an exception to flood insurance for any property lo- any requirement or provision of this cated in a SFHA, listing the lender as part or to address any omissions in this a loss payee.
Load more

Recommended publications
  • Calculating Interest Rates
    Calculating interest rates A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction 2. Annual percentage rate 3. Effective annual rate 1. Introduction The basis of the time value of money is that an investor is compensated for the time value of money and risk. Situations arise often in which we wish to determine the interest rate that is implied from an advertised, or stated rate. There are also cases in which we wish to determine the rate of interest implied from a set of payments in a loan arrangement. 2. The annual percentage rate A common problem in finance is comparing alternative financing or investment opportunities when the interest rates are specified in a way that makes it difficult to compare terms. One lending source 1 may offer terms that specify 9 /4 percent annual interest with interest compounded annually, whereas another lending source may offer terms of 9 percent interest with interest compounded continuously. How do you begin to compare these rates to determine which is a lower cost of borrowing? Ideally, we would like to translate these interest rates into some comparable form. One obvious way to represent rates stated in various time intervals on a common basis is to express them in the same unit of time -- so we annualize them. The annualized rate is the product of the stated rate of interest per compounding period and the number of compounding periods in a year. Let i be the rate of interest per period and let n be the number of compounding periods in a year.
    [Show full text]
  • Futures Contract on the Average Rate of One-Day Repurchase Agreements (Oc1) Backed by Federal Securities
    FUTURES CONTRACT ON THE AVERAGE RATE OF ONE-DAY REPURCHASE AGREEMENTS (OC1) BACKED BY FEDERAL SECURITIES – Specifications – 1. Definitions OC1 Futures Contract: to be used as the shortened name for the purposes of this contract, with the full name being the Futures Contract on the Average Rate of One-Day Repurchase Agreements (OC1) Backed by Federal Securities. Average Rate of One-Day adjusted average daily financing rate calculated Repurchase Agreements: by the Special System for Settlement and Custody (SELIC) for federal securities. Daily financing is considered on transactions with federal securities in the SELIC custody system, registered and settled at SELIC and in systems operated by the clearinghouses, or at clearing and settlement services providers encompassed by Law 10.214/2001. Unit Price (PU): value, in points, corresponding to 100,000 discounted by the interest rate described in item 2. Settlement price (PA): the closing price, in PU points, calculated and/or arbitrated daily by BM&FBOVESPA, at its sole discretion, for each of the authorized contract months, for the purpose of updating the value of open positions and calculating the variation margin and for the settlement of day trades. Reserve-day: business day for the purposes of financial market transactions, as established by the National Monetary Council. BM&FBOVESPA: BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros. BCB: Central Bank of Brazil 2. Underlying asset The effective interest rate until the contract’s expiration date, defined for these purposes by the accumulation of the daily rates of repurchase agreements in the period as of and including the transaction’s date up to and including the contract’s expiration date.
    [Show full text]
  • Decision on the Effective Interest Rate
    Pursuant to Article 304, item (1) of the Credit Institutions Act (Official Gazette 159/2013, 19/2015 and 102/2015) and in connection with Article 17 of the Act on Consumer Housing Loans (Official Gazette 101/2017), Article 13, paragraph (3) of the Credit Unions Act (Official Gazette 141/2006, 25/2009 and 90/2011) and Article 43, paragraph (2), item (9) of the Act on the Croatian National Bank (Official Gazette 75/2008 and 54/2013), the Governor of the Croatian National Bank hereby issues the Decision on the effective interest rate I GENERAL PROVISIONS Subject matter Article 1 (1) This Decision prescribes the calculation methodology and elements for the purposes of the uniform calculation of the effective interest rate (hereinafter referred to as 'EIR'). (2) This Decision transposes into the legal system of the Republic of Croatia Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014). Entities subject to the Decision Article 2 (1) Entities subject to this Decision shall be the following entities that provide services to consumers: 1. credit institutions with head offices in the Republic of Croatia that have been authorised by the Croatian National Bank; 2. credit institutions of the Member States that have established branches within the territory of the Republic of Croatia in accordance with the law governing the operation of credit institutions or that have been authorised to provide mutually recognised services directly within the territory of the Republic of Croatia; 3.
    [Show full text]
  • March 21, 2018
    Guaranteed Home Loan Program March 21, 2018 USDA Rural Development Guaranteed Home Loan Program Requires Itemization of Loan Discount Points and Origination Fees USDA Rural Development’s guaranteed home loan program requires that loan discount points and loan origination fees be itemized separately on the settlement statement so the amount of the loan used for loan discount points can be accurately identified. Also, loan discount points, other than to reduce the effective interest rate, cannot be financed as part of the loan. Discount points must be reasonable and customary for the area and cannot be more than those charged other applicants for comparable transactions. Permissible discount points financed may not exceed two percentage points of the loan amount for a non-streamlined refinance. Loan discount points representing fees other than to reduce the effective interest rate, such as to compensate for a low credit score or low loan amount, are ineligible loan purposes. Lenders must begin with an eligible interest rate prior to reducing the effective interest rate. Last year 2,100 rural Iowa families and individuals purchased homes by accessing more than $230 million in USDA Rural Development guaranteed loans. Please call (515) 284-4667, email [email protected] or visit www.rd.usda.gov/ia for more information. USDA Guaranteed Home Loan Program - Additional Information and Resources Stay informed of guaranteed home loan program changes by signing up for alerts at https://public.govdelivery.com/accounts/USDARD/subscriber/new?qsp=USDARD_25 USDA Rural Development's current 3555 Lender Handbook can be found at http://www.rd.usda.gov/publications/regulations-guidelines/handbooks.
    [Show full text]
  • Effective Interest Rate Disclosure
    Farm Credit Administration 1501 Farm Credit Drive McLean, Virginia 22102-5090 (703) 883-4000 INFORMATIONAL MEMORANDUM December 17, 2004 To: The Chief Executive Officer All Farm Credit System Institutions From: C. Edward Harshbarger, Acting Director Office of Policy and Analysis Subject: Effective Interest Rate Disclosure Section 4.13 of the Farm Credit Act of 1971, as amended (Act), requires that qualified lenders provide borrowers with meaningful and timely disclosure of the current rate of interest on loans and the effect of any purchases of stock or participation certificates (collectively referred to as "borrower stock") on the effective rate of interest. This requirement applies to all loans not subject to the Truth in Lending Act. To clarify the requirement of the Act, the Farm Credit Administration (FCA) recently amended its regulations on disclosure of effective interest rates (EIR). The final EIR regulation contained in 12 CFR 617 became effective on May 10, 2004. Subsequent to the amendment, we received several inquiries from Farm Credit System institutions for guidance on compliance with the regulation, including a concern that the effect of borrower stock distorts the EIR on short-term loans. While the Act requires that the cost of borrower stock be included in the EIR disclosure for all loans, FCA was mindful that additional or supplemental disclosures may also be appropriate. For this reason, the EIR regulation allows qualified lenders to provide supplemental disclosures explaining the effect of borrower stock on the EIR. An explanation of the nature of supplemental disclosures was provided in the preamble to § 617.7125 of the proposed rule: Qualified lenders may not .
    [Show full text]
  • Effective Rates of Interest: Beware of Inconsistencies
    I I I I "kI bN 4:)* 61 Rewards ISSUE 58 AUGUST 2011 EFFECTIVE RATES OF INTEREST: BEWARE OF INCONSISTENCIES By Stevens A. Carey* Synopsis: Current introductory textbooks on the mathematics offinance inconsistently define an "effective rate of interest ". Many, if not most, of these definitions are general and cover not only compound interest but also simple interest. These general definitions yield the same results onlyfor interest accumulation functions, such as continuous compound interest at a constant rate, which satisfy any one of three equivalent regularity conditions known as Markov accumulation, the consistency principle and the transitivity of the corresponding time value relation. Simple interest, as it is generally known, does not satisfy these conditions. Outside the context of compound interest, care must be taken to ensure that there is a common understanding of an effective rate of interest. * STEVENS A. CAREYis a transa ctional partner with Pircher, Nichols & Meeks, a real estate law firm with offices in Los Angeles and Chicago. This article is a condensed version of an article previously published by the author: Carey, "Effective Rates ofInterest", The Real Estate Finance Journal (JVinter 2011) © 2010 Thompson/West. Please refer to the prior article for more detail (including acknowledgments, citations, quotes of effective rate definitionsfrom various textbooks, and proofs). 1 INTRODUCTION - MUCH ADO ABOUT NOTHING? What is an effective rate of interest? Isn't the definition relatively standard? As the word "effective" suggests, the effective rate for a particular time period seems to be nothing more than the rate that reflects the actual economic "effect" of the interest during that period, namely: the actual percentage increase by which a unit investment would grow during the applicable period.
    [Show full text]
  • Derivative Instruments and Hedging Activities
    www.pwc.com 2015 Derivative instruments and hedging activities www.pwc.com Derivative instruments and hedging activities 2013 Second edition, July 2015 Copyright © 2013-2015 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication. The content of this publication is based on information available as of March 31, 2013. Accordingly, certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance that is issued. This publication has been updated to reflect new and updated authoritative and interpretative guidance since the 2012 edition.
    [Show full text]
  • The Math Behind Hecms
    The Math Behind HECMs PRESENTER: CRAIG BARNES, REVERSE MORTGAGE FUNDING Session Objectives Today’s session will: Illustrate how reverse mortgage interest rates are calculated. Explain vital application doc calculations, including: Amortization Schedule TALC TIL (Fixed Rate) Describe reverse mortgage loan growth LESA Loan balance Line of Credit Partial Repayments Review how to read a monthly statement Agenda Interest Rates TALC Expected Rates and Look Up Floor TIL Note Rates Loan Growth Principal Limit Factors LESA Payment Plan Math Line of Credit Ongoing MIP Expected Rate Amortization Schedule Initial Rate + Yield Curve Monthly Statements The Numbers INTEREST RATES, PLFS, MIP, AND PAYMENTS Principal Limit Factors . Principal limit tables determine the % of maximum claim amount borrower(s) will receive. The youngest borrower or non-borrowing spouse’s age (within 6 months of Closing), and expected interest rate determines what factor will be used. HUD changes these factors from time to time; depending on the projected performance of the HECM portfolio. Currently there is an Effective Interest Rate Floor of 5%. Expected rates of 5.06% (rounded) or less will provide the same principal limit. Principal limit factors stop increasing at age 90. PLF Table – Sample Illustration . The partial table below shows the 72 year old borrower factor used to calculate principal with a $300,000 limits for expected rates near 5% for max claim borrowers between 70-80. Rates are Expected Rate Principal Limit rounded to the nearest 1/8%.
    [Show full text]
  • Factors in and Feasibility of Interest Rate Hedging by Farmers
    FACTORS IN AND FEASIBILITY OF INTEREST RATE HEDGING BY FARMERS by TIMOTHY G. BEARNES B.S. , Kansas State University, 1979 A MASTER'S THESIS submitted in partial fulfillment of the requirements for the degree MASTER OF SCIENCE Agricultural Economics Department of Agricultural Economics KANSAS STATE UNIVERSITY Manhattan, Kansas 1984 Approved by: /ys*//Major Professor /y' 2l»Ufc A115D5 bb33S<l tabu; of contents Chapter I. INTRODUCTION 1 Problem Setting 1 Justification for Research 4 Purpose of Study 6 II. BACKGROUND AND LITERATURE REVIEW 7 Changing Farm Situation 7 Financial Futures Background 13 Hedging Background IS The Short Hedge ly The Long Hedge 20 Cross-Hedging 21 Basis Background 24 Optimal Hedging Ratio and Hedging Effectiveness 26 Cross-Hedging Studies 27 III. FEASIBILITY OF FARMER INTEREST RATE HEDGING 29 Hedging Instrument 29 Cash Instruments 30 The Data 32 Futures Yields 32 Cash Interest Rates 36 Correlation Analysis 39 Standard Deviation Cross-Hedge Test 42 Variability Differences in T-bond Contracts 45 Basis Analysis 45 Optimal Hedging Ratio 58 Dollar Equivalency 64 Summary 67 IV. APPLICATIONS 69 Cost of Hedging 69 Execution Costs 69 Transaction Costs 70 Cross-Hedging Examples 71 Fixed Rate Loan Hedging Example 72 Variable Rate Loan Hedging Example 78 Pre-Fixing a Variable Rate Loan 81 Federal Land Bank and Production Credit Association Interest Rate Hedges 83 V. SUMMARY AND CONCLUSIONS 84 Review of Study 84 Limitations of Study and Additional Considerations 88 Need for Further Study 89 SELECTED BIBLIOGRAPHY 91 LIST OF TABLES Table 1. Debt to Asset Batio U.S. Farms, January 1, 1975-1983 9 Table 2.
    [Show full text]
  • IFM-01-18 Page 1 of 104 SOCIETY of ACTUARIES EXAM IFM
    SOCIETY OF ACTUARIES EXAM IFM INVESTMENT AND FINANCIAL MARKETS EXAM IFM SAMPLE QUESTIONS AND SOLUTIONS DERIVATIVES These questions and solutions are based on the readings from McDonald and are identical to questions from the former set of sample questions for Exam MFE. The question numbers have been retained for ease of comparison. These questions are representative of the types of questions that might be asked of candidates sitting for Exam IFM. These questions are intended to represent the depth of understanding required of candidates. The distribution of questions by topic is not intended to represent the distribution of questions on future exams. In this version, standard normal distribution values are obtained by using the Cumulative Normal Distribution Calculator and Inverse CDF Calculator For extra practice on material from Chapter 9 or later in McDonald, also see the actual Exam MFE questions and solutions from May 2007 and May 2009 May 2007: Questions 1, 3-6, 8, 10-11, 14-15, 17, and 19 Note: Questions 2, 7, 9, 12-13, 16, and 18 do not apply to the new IFM curriculum May 2009: Questions 1-3, 12, 16-17, and 19-20 Note: Questions 4-11, 13-15, and 18 do not apply to the new IFM curriculum Note that some of these remaining items (from May 2007 and May 2009) may refer to “stock prices following geometric Brownian motion.” In such instances, use the following phrase instead: “stock prices are lognormally distributed.” November 2020 correction: Question 1 was edited to correct an error in the earlier version. Copyright 2018 by the Society of Actuaries IFM-01-18 Page 1 of 104 Introductory Derivatives Questions 1.
    [Show full text]
  • EFFECTIVE INTEREST RATES and BANK ADVERTS: MAKING SENSE OR MAKING CENTS? Craig Pournara Wits School of Education, University of Witwatersrand
    EFFECTIVE INTEREST RATES AND BANK ADVERTS: MAKING SENSE OR MAKING CENTS? Craig Pournara Wits School of Education, University of Witwatersrand Effective interest is an important concept for personal finance. In this paper the concept is defined and illustrated by means of numerical comparisons with nominal rate. A derivation of the formula is provided and the concept is applied to advertised rates of bank products. It appears that these banks advertise average effective annual rates rather than the effective annual rate determined by the conventional formula. INTRODUCTION The concept of effective interest is important because it enables us to compare different interest rates over different periods, and with different compounding frequencies. Consequently it has important practical implications in the context of personal finance. In the school curriculum, effective interest is introduced in Grade 11 Mathematics and Mathematical Literacy but text books generally do not extend their discussion to engage with the relationship between effective rates and actual banking products. Based on personal experience and discussions with teachers, both teachers and learners find the concept of effective interest elusive and therefore difficult. However, there appears to be no research in this area, which is not surprising given the dearth of research into teaching and learning financial maths in general. In this paper I explore the notion of effective interest, by focusing on its definition, its connection to percentage increase, and the derivation of the effective interest formula. I then discuss the interest rates of notice deposits as advertised by two of the big South African banks and show how effective rates are used in each case.
    [Show full text]
  • Accounting Standards Update No. 2016-13
    No. 2016-13 June 2016 Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments An Amendment of the FASB Accounting Standards Codification® The FASB Accounting Standards Codification® is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: Order Department Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT 06856-5116 Please ask for our Product Code No. ASU2016-13. FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published monthly with the exception of January and October by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Periodicals postage paid at Norwalk, CT and at additional mailing offices. The full subscription rate is $255 per year. POSTMASTER: Send address changes to Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. | No. 437 Copyright © 2016 by Financial Accounting Foundation. All rights reserved. Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Foundation.
    [Show full text]