Fannie Mae issues are not directly backed by the full faith and credit of the U.S. Government, All of the following statements describe Freddie Mac EXCEPT: **c.** United States v. Nixon, $1974$ C. semi-annually d. T-bills can be purchased directly at weekly auction, T-bills have a maximum maturity of 9 months, If interest rates rise, which of the following US government debt instruments would show the greatest percentage drop in value? If the maturity lengthens, then for a given rise in interest rates, the price will fall faster, Which statements are TRUE about changes in market interest rates and collateralized mortgage obligations? are stableD. If prepayments increase, they are made to the Companion class first. CMO classes may be specially structured in a manner that provides a variety of investment characteristics, such as yield, effective maturity and . III. B. security which is backed by the full faith, credit, and taxing power of the U.S. Government Which statements are TRUE regarding the principal repayments for Companion CMO tranches? Thus, because the PAC has lowered prepayment and extension risk, its yield will be lower than the surrounding Companion classes. PAC tranches increase prepayment risk to holders of that tranche mortgage backed securities created by a bank-issuerC. Plain Vanilla TrancheD. Ginnie Mae is backed by the guarantee of the U.S. Government, making it the highest credit rated agency security. a. treasury bills C. each tranche has a different credit rating which statements are true about po tranches. 2023 Which statement is true about personas? 1-Mar-23 C. 140% Instead of being backed by mortgages guaranteed by Fannie, Freddie or Ginnie, they are backed by private label mortgages - meaning mortgages that do not qualify for sale to these agencies (either because the dollar amount of the mortgage is above their purchase limit or they do not meet Fannie, Freddie or Ginnies underwriting standards). $$ vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. $$ A TAC is a variant of a PAC that has a lower degree of prepayment risk which statements are true about po tranches B. The best answer is C. A PO is a Principal Only tranche. D. Treasury Receipts. A. When interest rates rise, the price of the tranche falls 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. Unlike regular bonds, where when interest rates rise, prices fall, with an IO, when interest rates rise, prices rise! Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). Treasury NoteC. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs All government and agency securities are quoted in 32nds C. $4,920.00 Treasury Bonds are issued in either bearer or registered form Treasury Bonds are traded in 32nds The holder is not subject to reinvestment risk, Which of the following statements are TRUE about Treasury Receipts? The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. TIPS Foreign broker-dealers Principal repayments made earlier than expected are applied to the PAC prior to being applied to the Companion tranche mutual fund. II. An official statement issued by the finance ministry said the estimated shortfall of 1.1 trillion, assuming all states opt for borrowing, will be borrowed by central government in tranches and passed on to states "as a back-to-back loan in lieu of GST Compensation cess releases." IV. The note pays interest on Jan 1 and Jul 1. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. ( 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. loan to value ratio. There is no such thing as an AAA+ rating; AAA is the highest rating available. I. Fannie Mae is a publicly traded company If the principal amount of a Treasury Inflation Protection Security is adjusted upwards due to inflation, the adjustment amount is taxable in that year as ordinary interest income. Selected income statement items for the years ended December 31, 2014 and 2015, plus selected items from comparative balance sheets, are as follows: II. II. 95 Sallie Mae issues debentures, and uses the funds to make a secondary market, buying student loans from originating lenders (Sallie Mae stands for Student Loan Marketing Association). Which of the following statements regarding collateralized mortgage obligations are TRUE? Mortgage backed pass-through certificateC. Its price moves just like a conventional long term deep discount bond. This occurs because when market interest rates rise, the rate of prepayments falls (extension risk) and the maturity lengthens. Collateral trust certificates are directly issued by corporations - these are not derivative investments. (It is not a leap year). Not too shabby. Agency CMOs are created by Ginnie Mae, Fannie Mae, or Freddie Mac, using their own mortgage backed securities (MBSs) as the underlying collateral. III. I, II, III, IV. A. This makes CMOs more accessible to small investors. The bonds with the highest credit risk are Industrial revenue bonds and Equipment trust certificates. a. prepayment speed assumption A. General Obligation Bond I, II, IIIC. Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. II. The implicit rate of return is locked-in when the security is purchased. The service limit is set by Oracle based on the pricing model. REITs are common stock companies that make direct investments in real estate. 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. Collateralized mortgage obligation tranches that are available to the public are generally rated: A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. The service limit is a quota set on a resource. marketability risk Governments. Sallie Mae stock is listed and trades, Which of the following issue agency securities? C. A TAC is a variant of a PAC that has a higher degree of extension risk I all rated AAAII rated based on the credit quality of the underlying mortgagesIII can be backed by sub-prime mortgagesIV cannot be backed by sub-prime mortgages. I. FNMA is a publicly traded corporation are volatile. The preparation of the audited annual financial statements of the Group was supervised by Mr M Bosman, CA(SA). Which statement is TRUE about PO tranches? I CMO issues have a serial structureII CMO issues are rated AAAIII CMO issues are more accessible to individual investors than regular pass-through certificatesIV CMO issues have a lower level of market risk than regular pass-through certificates, A. I and II onlyB. IV. I. I. purchasing power risk taxable in that year as long term capital gainsD. During periods of falling rates, all certificate holders receive their share of those repayments pro-rata. Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like "wild cards" - whatever is left over is what you get! Mortgage backed pass-through certificates are "paid off" in a shorter time frame than the full life of the underlying mortgages. T-Bills trade at a discount from par A Z-tranch is a Zero tranche. These are issued at a deep discount to face. CMOs are available in $1,000 denominations. $.0625 per $1,000 Browse over 1 million classes created by top students, professors, publishers, and experts. A. Fannie Mae CertificateB. B. B. This is true because when the certificate was purchased, assume that the average life of the underlying 15 year pool (for example) was 12 years. For most investors this is too much money to invest, so they buy shares of a Ginnie Mae mutual fund instead. When interest rates rise, the price of the tranche risesB. The PAC class has a lower level of prepayment risk than the Companion class I and IVC. D. combined serial and series structures. A collateralized mortgage obligation is best defined as a derivative product. T-Notes are issued in book entry form with no physical certificates issued 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. Treasury bill prices are falling The note pays interest on Jan 1st and Jul 1st. D. Treasury Stock, Which statements are TRUE when comparing Treasury Bills to Treasury STRIPS? I. D. Series EE Bonds. What type of bond offers a "pure" interest rate? B. Ginnie Mae is a U.S. Government Agency I Trades bypass the floor broker II Trades can be effected more efficiently and at lower cost III Orders can be accepted up to certain size limits IV Orders can be executed at faster speed I, II, III, and IV D. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds. IV. DEBT: US GOV Flashcards | Quizlet Companion ClassD. II. If interest rates rise, then the expected maturity will shorten It's often empty, meaningless hype driven by consultants and schools and the cottage industry of courses, books, and certificate programs. B. U.S. Government Agency bonds There are on 20 number 1 buyers (such as for example Cantor Fitzgerald Which of the following are TRUE statements regarding government agencies and their obligations? Treasury Bills Debt: U.S. Government Debt Flashcards | Quizlet III. A 5 year $1,000 par 3 1/2% Treasury Note is quoted at 101-4 - 101-8. These are issued at a discount to face and each interest payment made brings the "notional principal" of the bond closer to par. The certificates are quoted on a percentage of par basis The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. If interest rates fall, then the expected maturity will shorten There are approximately 20 such firms. If market interest rates drop substantially, homeowners will refinance their mortgages and pay off their old loans earlier than expected. Note, however, that the "PSA" can change over time. III. III. c. 95 \text{Retained earnings}&\$175,400&\$220,000&\\ II. 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. Remember, government and agency securities are quoted in 32nds (with the exception of T-Bills, quoted on a yield basis). A customer buys 1 note at the ask price. 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. on the business day after trade date, through the Federal Reserve System C. Plain Vanilla Tranche The principal portion of a fixed rate mortgage makes smaller payments in the early years, and larger payments in the later years. $2.50 per $1,000D. Collateral trust certificate. Why News of Population Decline and Economic Slowdown Isn't Necessarily Governments. c. Office of the Comptroller of Currency FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation \begin{array}{c} Since 1 Basis Point = .01% = $.10, 140 Basis Points = 1.40% = $14.00. The smallest denomination available for Treasury Bills is: A. individuals seeking current income, Which of the following are issued with a fixed coupon rate? C. Treasury Bonds T-Bills have a maximum maturity of 2 years Federal Farm Credit Funding Corporation BondsD. On the other hand, extension risk is increased. holders of PAC CMO trances have higher prepayment risk c. T-bills have a maximum maturity of 9 months So if you're in a war, and the war is "Invasion of the Body Snatchers" where you don't know who is compromised (and was why that movie was made), then people die in a war. \quad\quad\quad\textbf{Assets}\\ 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. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. PAC tranche holders have higher extension risk than companion tranche holders. mortgages on privately owned homes and apartments. Besides, these portions of bonds or mortgages have varying amounts of risk and maturity. a. salt lake city to jackson hole scenic drive; how many convert to islam every year; TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates. The CMO is rated AAA B. Interest received by the holder of a mortgage backed pass through security is fully taxable by both federal, state, and local government. GNMA (Government National Mortgage Association) certificates, Treasury Bonds, and FNMA (Federal National Mortgage Association) bonds are all issued at par and make periodic interest payments. 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. U.S. Government Agency Securities trade flat Treasury STRIPS are not suitable investments for individuals seeking current income Although controversial and the subject of recent lawsuits (e.g., Satchell et al. A. GNMA certificate When the bond matures, the holder receives the higher principal amount. **a. c. CMOs are subject to a higher level of prepayment risk than a pass through certificate When interest rates rise, the interest rate on the tranche risesD. The holder is subject to reinvestment risk Homeowners will prepay mortgages when interest rates fall, so they can refinance at more attractive lower current rates. In periods of deflation, the principal amount received at maturity will decline below par I. GNMA is a publicly traded corporation which statements are true about po tranches C. series structures If interest rates fall rapidly after the mortgage is issued, prepayment rates speed up; if they rise rapidly after issuance, prepayment rates fall. B. Treasury Notes The PAC, which is relieved of these risks, is given the most certain repayment date. 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. Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. A TAC bond is designed to pay a target amount of principal each month. I When interest rates rise, the price of the tranche falls II When interest rates rise, the price of the tranche rises III When interest rates fall, the price of the tranche falls IV When interest rates fall, the price of the tranche rises" Question: Q5. A. average life of the tranche The collateral backing private CMOs consists of: The best answer is C. CMBs are Cash Management Bills. Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded If interest rates drop, the market value of CMO tranches will decrease CMO Targeted Amortization Classes (TACs) have: All of the following statements are true regarding this trade of T-Notes EXCEPT: D. call risk. Which statements are TRUE regarding treasury STRIPS? I. We are not the CEOs. A. III and IV onlyC. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. 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. \textbf{For the Year Ended December 31, 2014 and 2015}\\ D. the credit rating is considered the highest of any agency security. The annual accretion amount is taxable, since the underlying securities are U.S. I. T-Bills can be purchased directly at weekly auction If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. U.S. Government and Agency securities never trade flat (meaning without accrued interest), since a default is almost impossible. III. step up step down bond This prepayment speed assumption is used to guesstimate the expected life of a mortgage backed pass-through certificate. 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. Zero Tranche. Equipment Trust Certificate A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. Treasury Bills are quoted on a yield basis. The longer the maturity, the greater the price volatility of a negotiable debt instrument. If interest rates rise, then the expected maturity of a CMO tranche will lengthen, due to a lower prepayment rate than expected. All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: IV. II. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. **e.** Collin v. Smitb, $1978$. IV. Principal repayments on a CMO are made: b. the securities are sold at a discount A. discount rate A. Freddie MacsC. II. A customer has heard about the explosive growth in China and wants to make . a. The CDO market collapsed with the housing crash in 2008-2009 and has still not recovered (as of 2019). Federal Farm Credit Funding Corporation Note. Treasury STRIPS Which of the following statements are TRUE when comparing CMO PAC tranches to Companion tranches? when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations Which of the following statements are TRUE about Treasury Receipts? Quiz #1 Flashcards by Candace Houghton | Brainscape A TAC bond protects against prepayment risk; but does not offer the same degree of protection against extension risk.