b. CMOs make payments to holders monthly D. derivative product. Interest payments on CMOs are made pro-rata to all tranches, but principal repayments that are made earlier than the PAC maturity are made to the Companion classes before being applied to the PAC (this would occur if interest rates drop); while principal repayments made later than anticipated are applied to the PAC maturity before payments are made to the Companion class (this would occur if interest rates rise). \hline \text { Operating income } & \text { } & \text { } \\ 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? 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? I. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. There is no such thing as an AAA+ rating; AAA is the highest rating available. 1.4% The CMO purchaser buys a specific tranche. market value Which statements are TRUE about PO tranches? B. higher prepayment risk, but the same extension risk as a Planned Amortization Class PAC tranches reduce prepayment risk to holders of that tranche But we've saved 90% of the people and identified most of the alien overlords and their centers. 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. The note pays interest on Jan 1 and Jul 1. The current yield of the Treasury Bond is: Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? This interest income is subject to both federal income tax and state and local tax. Approximately how much will the customer pay, disregarding commissions and accrued interest? The smallest denomination available for Treasury Bills is: A. The note pays interest on Jan 1 and Jul 1. **e.** Collin v. Smitb, $1978$. A. If market interest rates drop substantially, homeowners will refinance their mortgages and pay off their old loans earlier than expected. Treasury bill C. $162.50 The market has never recovered. I. Ginnie Mae securities are listed and trade, Interest payments on Ginnie Mae pass-through certificates are made: III. When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), all of the following statements are true EXCEPT: A. III. II. Which statements are TRUE regarding Z-tranches? Which statement is TRUE about PO tranches? 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. CDOs - Collateralized Debt Obligations - are structured products that invest in CMO tranches (and they can also invest in other debt obligations that provide cash flows). Thus, the certificate was priced as a 12 year maturity. Fannie Mae issues are directly backed by the full faith and credit of the U.S. Government Which of the following statements are TRUE regarding CMOs? FNMA is owned by the U.S. Government Fannie Mae debt securities are negotiable A. term structures Zero Tranche. Tranches are groups of securities of a firm in which investors invest. II. 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. 2 basis points A. PAC tranche III. 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. CMOs are Collateralized Mortgage Obligations. I. IV. III. Today 07:16 If interest rates rise, then the expected maturity will lengthen, due to a lower prepayment rate than expected. Thus, the earlier tranches are retired first. B. mortgage backed securities created by a bank-issuer I. Ginnie Mae is a publicly traded company III. III. Thus, the earlier tranches are retired first. expected life of the trancheC. Unlike regular bonds, where when interest rates rise, prices fall, with an IO, when interest rates rise, prices rise! A. Treasury bill prices are falling a. GNMA is empowered to borrow from the treasury to pay interest and some principal if necessary The PAC class is given a more certain maturity date than the Companion class III. The holder is not subject to reinvestment risk, Treasury STRIPS are not suitable investments for individuals seeking current income 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. Market Value U.S. Government debt is sold via competitive bidding at a weekly auction conducted by the Federal Reserve. Interest payments are still made pro-rata to all tranches, 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. lamar county tx property search 2 via de boleto There are no new T-Receipt issues coming to market. I. FNMA II. I When interest rates rise, mortgage backed pass through certificates fall in price faster than regular bonds of the same maturityII When interest rates rise, mortgage backed pass through certificates fall in price slower than regular bonds of the same maturityIII When interest rates fall, mortgage backed pass through certificates rise in price faster than regular bonds of the same maturityIV When interest rates fall, mortgage backed pass through certificates rise in price slower than regular bonds of the same maturity, A. I and IIIB. 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. I. CMOs are not issued by government agencies; the agency issues the underlying pass-through certificates. Interest is paid after all other tranches CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. Treasury securities are the safest investment - they have virtually no credit risk (default risk) and almost no marketability risk. If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. A. Prepayment speed assumption d. Congress, All of the following are true statements about treasury bills EXCEPT: A. Conversely, when market interest rates fall, the rate of prepayments rises (prepayment risk) and the maturity shortens. 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. Fannie Mae issues are not directly backed by the full faith and credit of the U.S. Government, Ginnie Mae issues are directly backed by the full faith and credit of the U.S. Government T-Notes are sold by negotiated offering The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? The CMO takes on the credit rating of the underlying collateral. The rate of return on the bonds is "locked in" at purchase since the discount represents the compounded yield to be earned over the life of the bond. Prepayment risk IV. The PAC tranche is a "Planned Amortization Class." If interest rates fall, then the expected maturity will shorten. A customer who wishes to buy will pay the "Ask" of 4.90. The interest income from direct issues of the U.S. Government and most agency obligations is subject to federal income tax but is exempt from state and local tax. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. A. discount rate coupon rate remains at 4% CMOs are packaged and issued by broker-dealers. B. less than the rate on an equivalent maturity Treasury Bond C. FNMA Pass Through Certificates A customer has heard about the explosive growth in China and wants to make . ** New York Times v. United States, $1974$ B. Both securities are issued by the U.S. Government the U.S. Treasury issues 26 week T- BillsD. ", An investor in 30 year Treasury Bonds would be most concerned with: cannot 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. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs T-Bills are the most actively traded money market instrument, Which statements are always TRUE about Treasury Bonds? B. mutual fund Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like wild cards - whatever is left over is what you get! $$ Conversely, when interest rates fall (prepayment risk) the principal is being paid back at an earlier than expected date, so less interest is being received and the price falls (if interest rates fall drastically, the holder might get less interest back than what was originally invested). Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. IV. Which of the following is an original issue discount obligation? II. The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. These trades are settled through NSCC - the National Securities Clearing Corporation. III. Each tranche has a different level of market risk The interest received from a Collateralized Mortgage Obligation is subject to: A. B. prepayment speed assumption Besides, these portions of bonds or mortgages have varying amounts of risk and maturity. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? IV. A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. $81.25 b. Which statements are TRUE regarding Treasury debt instruments? Once the Treasury started issuing STRIPS in 1986, there was no need for the middleman anymore. Browse over 1 million classes created by top students, professors, publishers, and experts. Which of the following statements are TRUE about Treasury Receipts? B. expected life of the tranche There are approximately 20 such firms. In periods of deflation, the principal amount received at maturity is unchanged at par, In periods of deflation, the amount of each interest payment will decline when interest rates rise, prepayment rates fall I Each tranche has a different level of market riskII Each tranche has the same level of market riskIII Each tranche has a different yieldIV Each tranche has the same yield. Fully depreciated equipment costing $50,000 is discarded. When interest rates rise, the interest rate on the tranche fallsD. d. privatized syndicated asset, All of the following statements are true regarding CMOs EXCEPT: What is NOT a risk of investing in a GNMA? C. A TAC is a variant of a PAC that has a higher degree of extension risk Thrift institutions. For example, 30 year mortgages are now typically paid off in 10 years - because people move. (TIPS are usually purchased in tax qualified retirement plans that are tax-deferred. IV. A. lower prepayment risk, but the same extension risk as a Planned Amortization Class I. interest rates are falling \end{array} When all of the interest is paid, the "notional principal" has been brought to par and the security is now paid off. I. 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). A customer buys 5M of 3 1/4% Treasury Bonds at 99-31. D. 50 mortgage backed pass through certificates at par. c. PAC tranche Newer CMOs divide the tranches into PAC tranches and Companion tranches. B. the certificates are available in $1,000 minimum denominations All of the following trade "and interest" EXCEPT: Of the choices offered, which security is least subject to purchasing power risk? FHLMC III. T-Notes are issued in book entry form with no physical certificates issued All government and agency securities are quoted in 32nds If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. 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. At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. D. Any of the above. 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. All of them B. In periods of inflation, the amount of each interest payment will increase A. the same as the rate on an equivalent maturity Treasury Bond $4,914.06 b. II. \textbf{Selected Balance Sheet Items}\\ CMO holders receive monthly payments derived from the underlying mortgage backed pass-through certificates. B. a dollar price quoted to a 5.00 basis A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. Do not confuse this with the "average life" of the mortgages in the pool that backs the CMO. 1. Beitrags-Autor: Beitrag verffentlicht: 22. 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). When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. Sallie MaesB. III. A customer who wishes to buy 1 Treasury Bill will pay: The best answer is A. If the maturity shortens, then for a given fall in interest rates, the price will rise slower. CMO classes may be specially structured in a manner that provides a variety of investment characteristics, such as yield, effective maturity and . This is true because when the certificate was purchased, assume that the expected life of the underlying 15 year pool (for example) was 12 years. ), and Freddie Mac (Federal Home Loan Mortgage Corp.) all issue pass-throughs. A. GNMA is empowered to borrow from the Treasury to pay interest and principal if necessary A Targeted Amortization Class (TAC) is a variant of a PAC. 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. C. When interest rates rise, the interest rate on the tranche falls I. Thus, the interest rate on a short-term T-Bill is the pure interest rate - the same thing as the risk-free rate of return. can be backed by sub-prime mortgages 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? 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. C. series structures C. An annual upward adjustment due to inflation is taxable in that year; an annual downward adjustment due to deflation is tax deductible in that year.C. Thus, the PAC is given a more certain repayment date; while the CMO is given the least certain repayment date. Plain Vanilla TrancheD. Which of the following statements are TRUE about CMOs in a period of rising interest rates? A TAC bond is designed to pay a target amount of principal each month. A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. Because of this payment structure, it is most similar to a long-term bond, which pays principal at the end of its life. $$ Which CMO tranche will be offered at the highest yield? I. FNMA is a publicly traded corporation CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: B. U.S. Government Agency Securities have an implicit backing by the U.S. Government IV. II. Governments. Treasury Notes 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. This makes CMOs more accessible to small investors. \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ This is a tranche that only receives the principal payments from an underlying mortgage, and it is created with a corresponding IO (Interest Only) tranche that only receives the interest payments from that mortgage. D. $325.00. Each tranche has a different level of credit risk Real Estate Investment Trusts Each tranche has a different yield The note pays interest on Jan 1st and Jul 1st. CMOs are backed by agency pass-through securities held in trustC. Plain vanillaB. II. $.25 per $1,000C. IV. Treasury STRIPS Ginnie Mae issues are not directly backed by the full faith and credit of the U.S. Government Treasury Receipts represent an undivided interest in a portfolio of U.S. Government securities held by a trustee. General Obligation Bonds 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). A mortgage-backed security (MBS) that goes through this processseparating the interest and. III. Which statements are TRUE regarding the effect of changing interest rates on the expected maturity of a CMO tranche? 0. which statements are true about po tranches treasury bonds Why? $$ T-bills are issued in bearer form in the United States 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. II. A. This makes CMOs more accessible to small investors. A Targeted Amortization Class (TAC) is a variant of a PAC. D. according to the amortization schedule of the underlying mortgages. A customer who wishes to buy 1 Treasury Bill will pay: When all of the interest is paid, the notional principal has been brought to par and the security is now paid off. FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation T-Bills have a maximum maturity of 2 years Thus, payments are received monthly. receives payments after all other tranchesC. The preparation of the audited annual financial statements of the Group was supervised by Mr M Bosman, CA(SA). 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. General Obligation Bonds A. Real Estate Investment TrustD. The note pays interest on Jan 1 and Jul 1. IV. c. When interest rates rise, the interest rate on the tranche rises. 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. The spread is: A. Let's be real with ourselves. $10,000D. We are not the CEOs. quarterlyC. IV. Interest earned is subject to reinvestment risk The bonds are issued at a discount Interest income is accreted and taxed annually \textbf{Selected Income Statement Items}\\ Minimum $100 denominations Not too shabby. The annual accretion amount is taxable, since the underlying securities are U.S. II. Treasury STRIPS are quoted in 32nds, Which characteristic is NOT common to both Treasury STRIPS and Treasury Notes? I. d. 96, A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. Which statements are TRUE regarding collateralized mortgage obligations? Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. I. 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. For example, there may be 10 tranches in the pool, with the first tranche having an expected life of 1-2 years, the second tranche having an expected life of 3-5 years, the third tranche having an expected life of 5-7 years, etc. They are the shortest-term U.S. government security, often with maturities as short as 5 days. T-Bills are issued at a discount from par. treasury STRIPS, All of the following statements are TRUE about treasury receipts EXCEPT: PACs protect against extension risk, by shifting this risk to an associated Companion tranche. The best answer is C. A PO is a Principal Only tranche. interest rates are rising An IO is an Interest Only tranche. Thus, the certificate was priced as a 12 year maturity. III. In periods of deflation, the principal amount received at maturity is unchanged at par, Which statement is FALSE regarding Treasury Inflation Protection securities? Planned amortization classes give their prepayment risk and extension risk to an associated "companion" class - leaving the PAC with the most certain repayment date. TACs are like a one-sided PAC - they protect against prepayment risk, but not against extension risk. D. Companion tranche. $.0625 per $1,000 If this distribution well models the applicant pool, a randomly chosen applicant would have what probability of scoring in the following regions? All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: A. State income tax onlyC. C. When interest rates rise, the interest rate on the tranche falls II. 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? which statements are true about po tranches. Thus, when interest rates rise, prepayment risk is decreased. If interest rates fall, then the expected maturity will shorten The holder is subject to reinvestment risk a. T-bills are traded at a discount from par b. the yield to maturity will be higher than the current yield 2/32nds = .0625% of $1,000 par = $.625. 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 c. taxable in that year as long term capital gains Therefore, both PACs and TACs provide "call protection" against prepayments during period of falling interest rates. Treasury Bonds When interest rates rise, the price of the tranche rises A. 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. Macaulay durationD. I. a. 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 Ginnie's underwriting standards). c. eliminate prepayment risk to holders of that tranche IV. In periods of deflation, the amount of each interest payment is unchanged Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. The customer buys the bonds at 101 and 8/32s = 101.25% of $1,000 = $1,012.50. If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? Treasury BondD. A. CMBs are used to smooth out cash flow Which statements are TRUE regarding the principal repayments for Companion CMO tranches?
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