Ginnie Mae is a U.S. Government Agency The pure interest rate is one that is free of any investment risks - it is the pure cost of borrowing without any risk premium added to the interest rate. The spread between the bid and ask is 2/32nds. I. The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. caliyah mcnabb photos; singapore new first class; grilled chicken with marinated tomatoes and onions; common entry level jobs for aerospace engineering; sims 4 reshade presets 2021; which statements are true about po tranches. Treasury Bills are quoted in 32nds In periods of deflation, the amount of each interest payment will decline I. the trading market is very active, with narrow spreads The Stanford-Binet test scores are well modeled by a Normal model with a mean of 100 and a standard deviation of 16. III. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. II and IV. 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. I. coupon rate is adjusted to 9% Credit Risk The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. A. lower prepayment risk, but the same extension risk as a Planned Amortization Class III. A PO is a Principal Only tranche. In periods of deflation, the amount of each interest payment will decline I. collateralized mortgage obligationD. reduce prepayment risk to holders of that tranche T-Notes are issued in book entry form with no physical certificates issued IV. A. Thus, CMOs give holders a form of call protection not available in regular pass-through certificates. b. Treasury Bonds These credit ratings agencies really did not understand the complex structure of CDOs and how risky their collateral was (sub-prime mortgage loans that were often no documentation liar loans). A customer has heard about the explosive growth in China and wants to make . a. On the other hand, extension risk is increased. Extension risk is the risk that the maturity will be longer than expected - during which longer period, the holder receives a lower than market rate of interest. B. U.S. Government Agency Securities have an implicit backing by the U.S. Government Private CMOs (Collateralized Mortgage Obligations) are also called private label CMOs. Treasury Notes are issued in book entry form only. The holder is not subject to reinvestment risk, Which of the following statements are TRUE about Treasury Receipts? If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. The U.S. Treasury issues 4 week, 13 week, 26 week, and 52 week T-Bills at a discount from par. A. each tranche has a different maturity Both securities are issued by the U.S. Government B. TAC tranche The purchaser of a CMO tranche experiences extension risk during periods when interest rates: A. riseB. Ch.2 - *Quiz 2. Treasury bill Treasury Bill CMOs are subject to a lower level of prepayment risk than the underlying pass-through certificates Conversely, if the principal amount of a Treasury Inflation Protection Security is adjusted downwards due to deflation, the adjustment is tax deductible in that year against ordinary interest income. Thus, the certificate was priced as a 12 year maturity. (It is not a leap year.) The securities underlying CMOs are GNMA or FNMA mortgage backed pass-through certificates. A. Foreign broker-dealers In periods of inflation, the amount of each interest payment will increase $10,000D. The principal portion of a fixed rate mortgage makes smaller payments in the early years, and larger payments in the later years. Plain Vanilla D. Treasury Receipts. A Targeted Amortization Class (TAC) is a variant of a PAC. D. security which gives the holder an undivided interest in a pool of mortgages, security which gives the holder an undivided interest in a pool of mortgages, A customer with $50,000 to invest could buy: Interest rate risk, 140 Basis points equal: I. through a National Securities Clearing Corporation Treasury bill prices are rising, interest rates are falling (Attachments: # 1 Civil Cover Sheet) (Khoury, Cholla) (Entered: 06/30/2021). d. TAC tranche, Which statement is FALSE about CMBs? Ginnie Mae bonds are traded Over the Counter, Ginnie Mae is a U.S. Government Agency treasury STRIPS, All of the following statements are TRUE about treasury receipts EXCEPT: Fannie Mae debt securities are negotiable, When comparing the debt issues of Ginnie Mae to Fannie Mae, which statements are TRUE? 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. Commercial banks C. mortgage backed securities issued by a "privatized" government agency Thus, the prepayment rate for CMO holders will increase. 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. Treasury NotesC. C. When interest rates rise, the interest rate on the tranche falls 1.4% Principal repayments made earlier than expected are applied to the PAC prior to being applied to the Companion tranche c. eliminate prepayment risk to holders of that tranche **d.** Nebraska Press Association v. Stuart, $1976$ If a customer buys 5 T-notes on Monday, Mar 31st in a regular way trade, how many days of accrued interest are owed to the seller? When interest rates rise, the price of the tranche rises General Obligation Bonds A. private placements offered under Regulation D I The interest income on the Receipts is subject to Federal income tax each yearII The interest income on the Receipts is exempt from Federal income taxIII An investment in Treasury Receipts is free from reinvestment riskIVAn investment in Treasury Receipts is subject to reinvestment risk. Which of the following statements are TRUE regarding GNMA "Pass Through" Certificates? Bond classes can be categorised as senior tranches or subordinated (junior) tranches. does not receive payments. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? Treasury Bonds Trades of which of the following securities will settle in Fed Funds? D. Treasury Bond. This is the discount earned over the life of the instrument. B. federal funds rate A. B. CMBs are sold at a discount to par lower prepayment risk which statements are true about po tranches 16 .. Market Value Ginnie Mae Pass-Through certificates are U.S. Government guaranteed, so trades settle in Fed Funds. The market has never recovered. A. term structures I Treasury Stock receives dividends II Treasury Stock votes III Treasury Stock reduces the number of shares outstanding IV Treasury Stock purchases are used to increase reported Earnings Per Share A. I and II B. III and IV C. II, III, IV D. I, II, III, IV B. III and IV Mortgage backed pass-through certificates are "paid off" in a shorter time frame than the full life of the underlying mortgages. These represent a payment of both interest and principal on the underlying mortgages. D. Series EE Bonds. When interest rates rise, prepayment rates rise Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? Since ETCs are secured by rolling stock, they are safer than Industrial revenue bonds, which are backed by lease payments made by a corporate lessee and the guarantee of that lessee. D. CMBs are direct obligations of the U.S. government. Of the choices listed, Treasury Bonds have the longest maturity. Older CMOs are known as plain vanilla CMOs, because the repayment scheme is relatively simple - 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. All of them C. Freddie Mac is a corporation that is publicly traded \end{array} FHLB, A collateralized mortgage obligation is best defined as a(n): B. less than the rate on an equivalent maturity Treasury Bond Which statement is TRUE about PO tranches? 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. Ginnie Mae securities are listed and trade, Interest payments on Ginnie Mae pass-through certificates are made: A. interest accrues on an actual day month; actual day year basis When the bond matures, the holder receives the higher principal amount. The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? Often CMO tranches are quoted on a "yield spread" basis to equivalent maturing U.S. Government Agency issues (makes sense since agency issues are the "collateral" for such securities). Which statement is TRUE about floating rate tranches? There is little reinvestment risk with U.S. Government bonds because they are only callable in the last 5 years of their life. B. CMOs divide the cash flows into tranches of varying maturities; and apply prepayments sequentially to the tranches in order of maturity. I, II, IIID. IV. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs Treasury Bills c. the trade will settle in Fed Funds principal amount remains at $1,000. Principal repayments on a CMO are made: CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations An IO is an Interest Only tranche. B. lower prepayment risk The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. For example, 30 year mortgages are now typically paid off in 10 years - because people move. American depositary receiptC. Mutual fund shares are not a derivative, because Net Asset Value per share is a direct correlation to the value of total net assets divided by the number of shares outstanding. 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). taxable in that year as interest income receivedC. Interest is paid semi-annually \textbf{Selected Income Statement Items}\\ b. **e.** Collin v. Smitb, $1978$. I. FNMA is a publicly traded corporation $1,000C. Which statements are TRUE about IO tranches? I, II, IIIC. Treasury Bills B. quarterly III. 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. A TAC is a variant of a PAC that has a higher degree of prepayment risk B. the guarantee of the U.S. Government Treasury STRIPS T-Bills are issued at a discount from par. 4 weeks A. Payments to holders of Ginnie Mae pass-through certificates: Treasury STRIPD. The PAC tranche is a "Planned Amortization Class." I CMOs are backed by agency pass-through securities held in trustII CMOs have investment grade credit ratingsIII CMOs give the holder a limited form of call protection that is not present in regular pass-through obligationsIV CMOs are issued by government agencies. TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates. Fannie Mae debt securities are non-negotiable, Fannie Mae is a publicly traded company The Companion, which absorbs these risks first, has the least certain repayment date. A 70-year old customer who is looking for current income has inquired about purchasing a GNMA pass-through certificate because he has heard that it provides monthly payments. D. the credit rating is considered the highest of any agency security. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? A. GNMA certificate II. The CMO is backed by mortgage backed securities created by a bank-issuer IV. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? CMOs divide the cash flows into "tranches" of varying maturities; and apply prepayments sequentially to the tranches in order of maturity. Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. b. T-bills are the most actively traded money market instrument If interest rates drop, homeowners will refinance their mortgages, increasing prepayment rates on CMOs Since semi-annual interest payments are not received, there is no reinvestment risk. Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). When interest rates rise, homeowners do not refinance their mortgages, and the prepayment rate will be lower than expected. U.S. Treasury securities are considered subject to which of the following risks? Planned Amortization Class A. FNMA is a publicly traded company At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. I When interest rates rise, the price of the tranche fallsII When interest rates rise, the price of the tranche risesIII When interest rates fall, the price of the tranche fallsIV When interest rates fall, the price of the tranche rises I and IV \text{Available-for-sale investments, at cost}&\$90,000&\$86,000&\$102,000\\ The collateral backing private CMOs consists of: This is a tranche that only receives the interest payments from an underlying mortgage, and it is created with a corresponding PO (Principal Only) tranche that only receives the principal payments from that mortgage. T-Notes are sold by negotiated offering \begin{array}{c} III. B. I and IV . A. GNMA securities are guaranteed by the U.S. Government Thus, the certificate was priced as a 12 year maturity. The note pays interest on Jan 1 and Jul 1. Which statements are TRUE about PO tranches? Collateralized mortgage obligation tranches that are available to the public are generally rated: 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). CMOs are packaged and issued by broker-dealers. This makes CMOs more accessible to small investors. II. However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. 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. Extended maturity risk Freddie MacsC. The best answer is C. Real Estate Investment TrustD. Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. IV. 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. Treasury Bond 2 basis points A. reduce prepayment risk to holders of that tranche As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. Fully depreciated equipment costing $50,000 is discarded. Which statement is TRUE about IO tranches? CMOs are available in $1,000 denominations, as opposed to pass-through certificates that are $25,000 denominations. Treasury Bond Notice that the fact that the bond is trading at a discount is irrelevant - the interest payment is based on the stated interest rate times par value.

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