A. Fannie Maes. d. the credit rating is considered the highest of any agency security, interest payments are exempt from state and local taxes, Which of the following are TRUE regarding collateralized mortgage obligations? During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. TACs do not offer the same degree of protection against "extension risk" as do PACs during periods of rising interest rates - hence their prices will be more volatile during such periods. A. interest accrues on an actual day month; actual day year basis What is NOT a risk of investing in a GNMA? The PAC class has a lower level of prepayment risk than the Companion class, Which statement is TRUE about a Targeted Amortization Class (TAC)? taxable in that year as interest income receivedC. B. mutual fund If market interest rates drop substantially, homeowners will refinance their mortgages and pay off their old loans earlier than expected. Beitrags-Autor: Beitrag verffentlicht: 22. lamar county tx property search 2 via de boleto a. prepayment speed assumption in subculturing, when do you use the inoculating loop cactus allergy . Which statements are TRUE about private CMOs? U.S. Government and agency bond trades settle in Federal Funds, which are good funds the business day of the funds transfer (next business day for regular way settlement of government securities). Therefore, as interest rates move up, the interest rate paid on the tranche steps up as well; and when interest rates drop, the interest rate paid on the tranche steps down as well. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. D. yearly, Wide swings in market interest rates would affect which of the following for holders of collateralized mortgage obligations? The interest coupons are sold off separately from the principal portion of the obligation A customer buys 5M of 3 1/4% Treasury Bonds at 99-31. D. Treasury Stock, Which of the following are TRUE statements about Treasury Bills? III. vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. Which statement is TRUE about floating rate tranches? C. A TAC is a variant of a PAC that has a higher degree of extension risk f(x)=4 ; x=0 III. Treasury Notes Commercial banks IV. b. planned securitization alogorithm Income from REITs is fully taxable as well. PACs are similar to TACs in that both provide call protection against increasing prepayment speedsD. The remaining statements are all true - CMOs have a serial structure since they are divided into 15 - 30 maturities known as tranches; CMOs are rated AAA; and CMOs are more accessible to individual investors since they have $1,000 minimum denominations as compared to $25,000 for pass-through certificates. If a customer buys 5 T-notes on Friday, April 4th in a regular way trade, how many days of accrued interest are owed to he seller? Reinvestment risk is greater for Ginnie Maes than for U.S. A Targeted Amortization Class (TAC) is a variant of a PAC. II. Sallie Mae stock is listed and trades B. \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ When interest rates rise, the interest rate on the tranche risesD. The Stanford-Binet test scores are well modeled by a Normal model with a mean of 100 and a standard deviation of 16. Treasury Bills Each tranche has a different level of market risk A. discount rate If the principal amount of a Treasury Inflation Protection Security is adjusted upwards due to inflation, the adjustment amount is: A. not taxableB. Principal only strips (PO strips) are a fixed-income security where the holder receives the non-interest portion of the monthly payments on the underlying loan pool. a. not taxable B. the guarantee of the U.S. Government What do you think is the most difficult This makes CMOs more accessible to small investors. The current yield of the Treasury Bond is: Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? C. in varying dollar amounts every month Prepayment risk II. C. security which is backed by real property and/or a lien on real estate They are sold at auction by the Treasury on an "as needed" basis to meet unexpected cash shortfalls, so they are not part of the regular auction cycle. a. CMOs are available in $1,000 denominations C. $162.50 IV. For example, 30 year mortgages are now typically paid off in 10 years - because people move. Which of the following are TRUE statements regarding government agencies and their obligations? When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. A TAC is a variant of a PAC that has a lower degree of prepayment risk The housing bubble that ended badly in 2008 with a market crash was fueled by massive issuance of sub-prime mortgages to unqualified home buyers, that were then packaged into CDOs and sold to unwitting institutional investors who relied on the credit rating assigned by S&P or Moodys. Non-callable funded debtC. individuals seeking current income, Which of the following are issued with a fixed coupon rate? IV. Foreign broker-dealers II. which statements are true about po tranches. Let's be real with ourselves. A 5 year 3 1/2% Treasury Note is quoted at 101-4 - 101-8. B. Non- deliverable forwards and contracts for differences have distinct settlement procedures. A. If prepayments increase, they are made to the Companion class first. II. IV. CMOs are packaged and issued by broker-dealers. Therefore, both PACs and TACs provide call protection against prepayments during period of falling interest rates. T-Bills trade at a discount from par c. When interest rates rise, the interest rate on the tranche rises. An exception is the interest income received from mortgage backed pass through certificates (issued by GNMA, FNMA, FHLMC). are volatile. Because interest will now be paid for a longer than expected period, the price rises. D. accrued interest on the certificates is computed on a 30 day month/360 day year basis, the certificates are available in $1,000 minimum denominations, Which of the following trades settle in "clearing house" funds? The formula for current yield is: Annual Income = Current YieldMarket Price. Treasury Bond I have underlying mortgage collateral that is backed by Fannie Mae, Freddie Mac or Ginne MaeII have underlying mortgage collateral that is backed only by the credit quality of those mortgagesIII are all rated AAAIV are rated based on the credit quality of the underlying mortgages. A. Which statements are TRUE regarding Treasury debt instruments? III. 1.4% pasagot po. The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? 90 T-Bills have a maximum maturity of 2 years If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs D. $325.00. IV. Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: A. A. Fannie Mae is a U.S. Government Agency II and IIID. The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? "5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). Thus, the PAC class is given a more certain maturity date; while the Companion class has a higher level of prepayment risk if interest rates fall; and a higher level of so-called extension risk - the risk that the maturity may be longer than expected, if interest rates rise. &\textbf{Dec.31, 2013}&\textbf{Dec.31, 2014}&\textbf{Dec.31, 2015}\\\hline A. equity security B. One of the question asked in certification Exam is, Which statement is true about personas? **c.** United States v. Nixon, $1974$ Planned amortization classes give their prepayment risk and extension risk to an associated companion class - leaving the PAC with the most certain repayment date. Thereby when interest rates increase, prices increase, and vice versa. I. IV. Treasury NoteC. Interest income is accreted and taxed annually IV. b. interest payments are exempt from state and local taxes Which statements are TRUE regarding Treasury debt instruments? holders of "plain vanilla" CMO tranches have higher prepayment risk, Which CMO tranche is most susceptible to interest rate risk? $$ Which statements are TRUE regarding collateralized mortgage obligations? Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? . Payments to holders of Ginnie Mae pass-through certificates: A. $4,906.25 I. treasury bills A. credit risk A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? Local income tax onlyD. TACs are like a one-sided PAC - they protect against prepayment risk, but not against extension risk. c. the maturity is 1 year or less II. II. Treasury Receipts, All of the following are true statements about U.S. Government Agency securities EXCEPT: Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? Interest rate risk, Extended maturity risk Also note that even though Standard and Poors downgraded Treasury Debt to an AA+ rating in the summer of 2011, Moodys and Fitchs retained their AAA ratings. II. D. FNMA bond. Treasury securities are the safest investment - they have virtually no credit risk (default risk) and almost no marketability risk. I When interest rates rise, maturities will lengthenII When interest rates fall, maturities will shortenIII When interest rates rise, holders are subject to prepayment riskIV When interest rates fall, holders are subject to extension risk. B. B. Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. I Payments are larger in the early yearsII Payments are smaller in the early yearsIII Payments are larger in the later yearsIV Payments are smaller in the later years. If it is an agency CMO created by Ginnie Mae, the securities have the direct backing of the U.S. Government; if the agency CMO is created by Fannie Mae or Freddie Mac, it has the implied backing of the U.S. Government. B. step up step down bond a. T-bills are traded at a discount from par On the other hand, extension risk is decreased. I. Fannie Mae is a publicly traded company When interest rates rise, the price of the tranche risesB. As payments are received from the underlying mortgages, interest is paid pro-rata to all tranches; but principal repayments are paid sequentially to the first, then second, then third tranche, etc. Conventional Treasury Bonds are subject to this risk, since interest payments are received semi-annually. II. B. The first 3 statements are true. A TAC is a variant of a PAC that has a higher degree of prepayment risk \end{array} Which statement is TRUE about PO tranches? A. average life of the tranche Ch.2 - *Quiz 2. If the maturity shortens, then for a given fall in interest rates, the price will rise slower. a. CMO In periods of deflation, the amount of each interest payment will decline C. more than the rate on an equivalent maturity Treasury Bond This means that the dollar price will be computed by deducting a discount of 4.90 percent from the minimum par value of $100. II. 95 $$ $35.00 The CDO market boomed until 2007 and then crashed and burned with the housing collapse of 2008-2009, when CDO holders discovered that their supposedly "lower risk" tranches defaulted. A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. A. a dollar price quoted to a 4.90 basis Thus, the prepayment rate for CMO holders will increase. Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. Mortgage backed pass-through certificate Because CMO issues are divided into tranches, each specific tranche has a more certain repayment date, as compared to owning a mortgage backed pass-through certificate. II. part of budgeting? I. d. Freddie Mae, Which of the following would NOT purchase STRIPS? U.S. Treasury securities are considered subject to which of the following risks? The spread is: Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A. Fannie Mae Pass Through CertificatesB. B. Private CMOs (Collateralized Mortgage Obligations) are also called "private label" CMOs. 94 Mortgage backed pass-through certificateC. When interest rates rise, the price of the tranche fallsC. Principal is paid after all other tranches, A floating rate CMO tranche is MOST similar to a: Domestic broker-dealers If interest rates drop, the market value of the CMO tranches will increase. IV. A. Planned Amortization Class All of the following statements are true about CMOs EXCEPT: A. CMO issues have a serial structureB. True, the transition to the post-growth era won't be easy for the CCP or the Chinese people if income and wages level off or worsen, and if a declining tax base can't sustain an aging population. These are issued at a discount to face and each interest payment made brings the notional principal of the bond closer to par. III. Principal repayments on a CMO are made: B. mortgage backed securities created by a bank-issuer Treasury Bills, The nominal interest rate on a TIPS approximates the: Thrift institutions are not permitted to be primary dealers. b. 24/32nds = .75, so the bond is quoted at 95.75% of $1,000 par value = $957.50. I. Sallie Mae is a privatized agency IV. CMO tranches are generally AAA rated (or have an implied AAA rating because the tranches are backed by GNMA, FNMA or Freddie Mac pass-through certificates). B. security which is backed by the full faith, credit, and taxing power of the U.S. Government principal amount remains at $1,000. Which of the following statements are TRUE about CMOs? b. increase prepayment risk to holders of that tranche Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded I. holders of PAC CMO tranches have lower prepayment risk CMOs have a lower level of market risk (risk of price volatility due to movements in market interest rates) than do mortgage backed pass-through certificates. Bank issuers make non-conforming mortgages that cannot be sold to Fannie, Freddie or Ginnie and rather than hold them as investments, they can pool them into mortgage backed securities which are then placed into trust and sold as private label CMOs. II. $$ The smallest denomination available for Treasury Bills is: A. Treasury Bills are original issue discount obligations. Sallie Mae stock does not trade, Sallie Mae is a privatized agency Thus, there is no purchasing power risk with these securities. III. I PACs are similar to TACs in that both provide call protection against increasing prepayment speedsII PACs differ from TACs in that TACs do not offer protection against a decrease in prepayment speedsIII PAC holders have a degree of protection against extension risk that is not provided to TAC holdersIV TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates, A. I onlyB. II. Which statement is TRUE about PO tranches? Thus, the expected mortgage repayment flows from the underlying pass-through certificates slow down, and the expected maturity of the CMO tranches will lengthen. I. Which of the following statements are true? III. d. Savings (EE) bonds, All of the following agencies provide financing for residential housing EXCEPT: III. D. Companion tranche. II. \end{array} The best answer is C. CMBs are Cash Management Bills. The Companion class is given a more certain maturity date than the PAC class A TAC bond protects against prepayment risk; but does not offer the same degree of protection against extension risk. c. taxable in that year as long term capital gains C. the same level of prepayment risk Call and put options are the most basic derivative - option values are derived from the price movements of the underlying stock, in addition to time premiums on the contracts. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds All of them C. 15 year standard life If Treasury bill yields are dropping at auction, this indicates that: (It is not a leap year.) which statements are true about po tranches. Losses are first absorbed by the most junior (lower) classes. Treasury Receipts, Treasury Bills CMOs have a lower level of market risk (risk of price volatility due to movements in market interest rates) than do mortgage backed pass-through certificates. These represent a payment of both interest and principal on the underlying mortgages. III. I. through a National Securities Clearing Corporation I. CMOs take the payment flow from the underlying pass-through certificates and allocate them to so-called tranches. A CMO backed by 30 year mortgages might be divided into 15-30 separate tranches. Home . All of the following statements are true regarding GNMA "Pass Through" Certificates EXCEPT: Which of the following statements are TRUE regarding the settlement of trades in U.S. Government bonds? Thus, the price movement of that specific tranche, in response to interest rate changes, more closely parallels that of a regular bond with a fixed repayment date. Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: B. Since each tranche represents a differing maturity, the yield on each will differ, as well. II. Today 07:16 As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. IV. Governments. actual maturity of the underlying mortgages. The implicit rate of return is locked-in when the security is purchased, and the customer will earn that rate of return if the security is held to maturity. treasury bonds There is usually a cap on how high the rate can go and a floor on how low the rate can drop. IV. coupon rate remains at 4% B. Government agency securities have an indirect backing (or implicit) by the U.S. Government. 2 basis points A. monthly Thus, the price movement of that specific tranche, in response to interest rate changes, more closely parallels that of a regular bond with a fixed repayment date. $$ After reviewing the website, explain how not-for-profit organizations are rated. Regular way trades of U.S. Government bonds settle: If prepayment rates rise, the PAC tranche will receive its sinking fund payment after its companion tranchesC. Which statements are TRUE about PO tranches? Principal repayments made earlier than that required (earlier than expected) to retire the PAC at its maturity are applied to the Companion class; while principal repayments made later than expected are applied to the PAC maturity before payments are made to the Companion class. III. D. no prepayment risk. I. I. pension funds Each receipt is, essentially, a zero-coupon obligation, that is purchased at a discount, and which is redeemable at par at a pre-set date. Which of the following statements are TRUE regarding CMOs? C. each tranche has a different credit rating I. All of the following statements are true regarding collateralized mortgage obligations EXCEPT: A. CMOs are issued by local government agenciesB. The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pool's: Treasury bondB. Credit Risk Treasury Bonds are traded in 32nds the U.S. Treasury issues 13 week T- BillsC. IV. We are not the heroes of the narrative. money market funds Thus, the earlier tranches are retired first. III. Again, these are derived via a formula. I, II, IVC. All of the tranches are issued on the same date; but the maturities extend over a sequence of years. Corporate and municipal bond trades settle in clearing house funds. An IO is an Interest Only tranche. I. T-bills are registered in the owner's name in book entry form The interest income on U.S. Government obligations and most agency obligations is subject to Federal income tax but is exempt from state and local tax. Treasury billD. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A government bond dealer is making good delivery to another government dealer. When interest rates rise, the price of the tranche falls Treasury Bills are quoted on a yield to maturity basis $$ The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. d. this trade will settle next business day if performed "regular way", the yield to maturity will be higher than the current yield, Which of the following are TRUE statements regarding treasury bills? default risk, A 5 year, 3 1/4% treasury note is quoted at 101-4 - 101-8. Real Estate Investment TrustD. Treasury STRIP Federal income tax onlyB. Which statements are TRUE about PO tranches? A PO is a Principal Only tranche. Market interest rate movements have no effect on the stated interest rate paid by the security; and would not affect the credit rating of the issue. D. the trade will settle next business day if performed "regular way", the yield to maturity will be higher than the current yield The service limit is set by administrators to allow users to use the required resources. I The investor locks in a rate of return that is free from reinvestment risk if the Receipt is held to maturityII The underlying bonds are held by a trustee for the beneficial ownersIII The interest income on the Receipts is subject to Federal income tax annuallyIV The Receipts are issued by broker-dealers, who maintain a secondary market in these securities, A. III and IV onlyB. C. Municipal bonds II. Commercial banks When the bond matures, the holder receives the higher principal amount. I when interest rates fallII when interest rates riseIII so they can refinance at lower ratesIV so they can refinance at higher rates. A customer who wishes to buy will pay the "Ask" of 4.90. Thus, the certificate was priced as a 12 year maturity. D. Companion. c. treasury bonds $.0625 per $1,000 I. T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve Thus, the PAC class is given a more certain maturity date; while the Companion class has a higher level of prepayment risk if interest rates fall; and a higher level of so-called extension risk - the risk that the maturity may be longer than expected, if interest rates rise. GNMA pass through certificates are guaranteed by the U.S. Government, All of the following statements are true about the Government National Mortgage Association Pass-Through Certificates EXCEPT: PAC tranches increase prepayment risk to holders of that tranche IV. how to ultimate male vitamin; sildenafil (viagra) dick enlargment surgery; how to healthy natural lubricants; which drug for erectile dysfunction definition cialis An IO is an Interest Only tranche. I. B. IV. The price movements of IOs are counterintuitive! A companion tranche is a class, or type, of tranche, which is a portion of a debt or security. All of the following statements are true about "plain vanilla" CMO tranches EXCEPT: A. each tranche has a different maturity B. each tranche has a different yield C. each tranche has a different credit rating D. each tranche has a different level of interest rate risk. The holder is not subject to reinvestment risk, Which of the following statements are TRUE about Treasury Receipts? IV. III. Newer CMOs divide the tranches into PAC tranches and Companion tranches. Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. a. interest is paid at maturity U.S. Government Bonds Both securities pay interest at maturity The interest received from a Collateralized Mortgage Obligation is subject to: Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? C. the trade will settle in Fed Funds The market has never recovered. Federal Home Loan Bank Bonds. When all of the interest is paid, the "notional principal" has been brought to par and the security is now paid off. Thus, the average life of pass-through certificates that represent ownership of that mortgage pool will lengthen; as will the average life of CMO tranches which are derived from those certificates (though not to the same extent). When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. holders of PAC CMO trances have higher prepayment risk Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. 1. II. IV. Each CMO tranche has an expected maturity, but the actual repayments are based on the rate of principal repayments that come in from the underlying mortgages - and this rate can vary. mortgage backed securities issued by a privatized government agencyD. The dollar price of a $1,000 par bond is: A $950.24 B $952.40 C $957.50 D $1,000.00. I Interest is paid before all other tranchesII Interest is paid after all other tranchesIII Principal is paid before all other tranchesIV Principal is paid after all other tranches. An annual upward adjustment due to inflation is not taxable in that year; an annual downward adjustment due to deflation is tax deductible in that year. \begin{array}{c} D. unrelated to the rate on an equivalent maturity Treasury Bond, less than the rate on an equivalent maturity Treasury Bond, Which statements are TRUE regarding Treasury Inflation Protection securities? This interest income is subject to both federal income tax and state and local tax. Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? Targeted Amortization ClassC. IV. The holder is subject to reinvestment risk Ginnie Mae stock is traded on the New York Stock Exchange If interest rates fall, then the average maturity will shorten, due to a higher prepayment rate than expected. I. PAC tranches reduce prepayment risk to holders of that tranche which statements are true about po tranches. can be backed by sub-prime mortgages If interest rates fall rapidly after the mortgage is issued, prepayment rates speed up; if they rise rapidly after issuance, prepayment rates fall. Treasury Bonds are issued in either bearer or registered form $25 per $1,000. Therefore, an interest rates move up, the interest rate paid on the tranche steps up as well; and when interest rates drop, the interest rate paid on the tranche steps down down as well. I. T-Bills can be purchased directly at weekly auction Treasury STRIPS are not a derivative, because the value of the coupons "stripped" from the Treasury bonds is a direct correlation to the interest payments received from the underlying U.S. Government securities. D. Collateral trust certificate, Treasury bond CMO investors are subject to which of the following risks? CMOs receive the same credit rating (AAA or AA) as the underlying mortgage backed pass-through certificates held in trust. Not too shabby. III. U.S. Government Agency Securities trade flat Post author: Post published: June 23, 2022 Post category: assorted ornament by ashland assorted ornament by ashland Duration is a measure of bond price volatility. 26 weeks I. A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. Which CMO tranche will be offered at the lowest yield? a. Fannie Mae b. C. Credit risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds This pool, with say an average life of 12 years, is "chopped-up" into many different tranches, each with a given "expected life." Planned Amortization ClassB. Market Value IV. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. Interest payments are still made pro-rata to all tranches (like plain vanilla CMOs), but principal repayments made earlier than that required to retire the PAC at its maturity are applied to the Companion class; while principal repayments made later than expected are applied to the PAC maturity before payments are made to the Companion class. CMO issues are more accessible to individual investors than regular pass-through certificatesD. can be backed by sub-prime mortgages A Targeted Amortization Class (TAC) is a variant of a PAC. c. eliminate prepayment risk to holders of that tranche lower extension riskC. c. CMB c. predicted standardization amortization principal amount is adjusted to $1,050 d. annually, Which of the following designates "primary" US government securities dealers? If interest rates fall, then the expected maturity will lengthen T-Bills are the most actively traded money market instrument, Which statements are always TRUE about Treasury Bonds? Which two statements are true about service limits and usage?
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