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If interest rates drop, homeowners will refinance their mortgages, increasing prepayment rates on CMOs All of the following are true statements regarding Treasury Bills EXCEPT: A. T-Bills are issued in bearer form in the United States B. T-Bills are registered in the owner's name in book entry form C. T-Bills are issued at a discount D. T-Bills are non-callable. Governments. III. What is not eliminated, however, is credit risk. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. Answers: 3 Get Iba pang mga katanungan: Science. C. discount bond \textbf{For the Year Ended December 31, 2014 and 2015}\\ A customer who wishes to buy will pay the "Ask" of 4.90. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. Post author: Post published: June 23, 2022 Post category: assorted ornament by ashland assorted ornament by ashland II. If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. b. C. semi-annually What is the current yield, disregarding commissions? In periods of deflation, the principal amount received at maturity will decline below par A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. D. combined serial and series structures. The interest received from a Collateralized Mortgage Obligation is subject to: A. principal amount is adjusted to $1,050 C. Planned amortization class $2.50 per $1,000D. If interest rates fall, then the expected maturity will shorten A. Freddie Mac buys conventional mortgages from financial institutions I. When compared to plain vanilla CMO tranches, Planned Amortization Classes have: Treasury Notes CMOs are issued by government agencies, CMOs are backed by agency pass through securities held in trust b. treasury notes I. T-bills are registered in the owner's name in book entry form Only mortgage backed pass-through certificates are used as the backing for CMOs - and Ginnie Mae (Government National Mortgage Assn. If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. Beitrags-Autor: Beitrag verffentlicht: 22. Do not confuse this with the average life of the mortgages in the pool that backs the CMO. C. security which is backed by real property and/or a lien on real estate money market funds When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. Treasury billD. 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). Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds A. Ginnie Mae CertificateC. The market has never recovered. IV. Treasury Bills are quoted in 32nds Which statements are TRUE about PO tranches? Treasury bond C. series structures IV. II. Since interest is paid semi-annually, each payment will be for $81.25. A 5 year 3 1/2% Treasury Note is quoted at 101-4 - 101-8. 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. The Companion class is given a more certain maturity date than the PAC class A. lower prepayment risk, but the same extension risk as a Planned Amortization Class The CDO innovation was that the tranches were arranged into risk-levels, so lower risk tranches and higher risk tranches were created with the sub-prime collateral. the same level of extension riskD. The CMO is rated AAA Accrued interest on the certificates is computed on an actual day month / actual day year basis Plain Vanilla TrancheD. 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. 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. Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Financial Management, Concise Edition, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. IV. The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pool's: Federal Farm Credit Funding Corporation Note. Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: FHLMC III. 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. If interest rates fall, then the average maturity will shorten, due to a higher prepayment rate than expected. II. 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 customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. Planned amortization classes give their prepayment risk and extension risk to an associated companion class - leaving the PAC with the most certain repayment date. Interest earned is subject to reinvestment risk, The bonds are issued at a discount When interest rates rise, the price of the tranche risesC. Thus, average life of the TAC is extended until the arrears is paid. A. collateral trust certificateB. c. certificates are issued in minimum units of $25,000 Treasury BondD. III. A. all at once at maturity date of the tranche purchased However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. B. interest payments are subject to state and local tax Interest received by the holder of a mortgage backed pass through security is fully taxable by both federal, state, and local government. 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. Once the Treasury started issuing STRIPS in 1986, there was no need for the middleman anymore. II and III onlyC. A customer buys 5M of the notes. A. reduce prepayment risk to holders of that tranche Corporate and municipal bond trades settle in clearing house funds. D. Companion. I. I, II, III, IV. A 5 year $1,000 par 3 1/2% Treasury Note is quoted at 101-4 - 101-8. If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. II. Targeted Amortization Class. C. Freddie Mac is a corporation that is publicly traded Because the principal is being paid back at an earlier date, the price rises. Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ I. D. In periods of inflation, the principal amount received at maturity is more than par. which statements are true about po tranches. 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. I. PAC tranches reduce prepayment risk to holders of that tranche He wants to receive payments over a minimum 10-year investment time horizon. Treasury NotesC. Which statements are TRUE about PO tranches? A. No certificates are issued for book entry securities; the only ownership record is the "book" of owners kept by the transfer agent. A. discount rate There are approximately 20 such firms. taxable in that year as interest income receivedC. D. A TAC is a variant of a PAC that has a lower degree of extension risk. II. B. TAC tranche II. A $1,000 par Treasury Note is quoted at 101-3 - 101-5. II. The CMO takes on the credit rating of the underlying collateral. Holders of CMOs receive interest payments: A. monthlyB. \quad\quad\quad\textbf{Assets}\\ Thus, payments are received monthly. A collateralized mortgage obligation is best defined as a derivative product. CMOs receive the same credit rating as the underlying pass-through securities held in trust Thus, the prepayment rate for CMO holders will increase. 90 II. III. Highland Industries Inc. makes investments in available-for-sale securities. B. the certificates are available in $1,000 minimum denominations ( Ch.2 - *Quiz 2. 8 Q III. 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. Collateralized mortgage obligation values are derived from the underlying mortgage backed pass-through certificates held in trust by recutting the cash flows and applying them to the CMO tranches. Thrift institutions are not permitted to be primary dealers. Whereas CMOs backed by Fannie, Freddie or Ginnie mortgage-backed securities are rated AAA, the rating of "private label" CMOs is dependent on the credit quality of the underlying mortgages. receives payments after all other tranchesC. represent a payment of both interest and principal Ginnie Mae stock is traded on the New York Stock Exchange Because of this payment structure, it is most similar to a long-term bond, which pays principal at the end of its life. B. Treasury STRIP $81.25 A TAC bond is designed to pay a target amount of principal each month. Treasury STRIPS are quoted in 32nds IV. vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. An IO is an Interest Only tranche. C. 10 mortgage backed pass through certificates at par $$ A customer buys 1 note at the ask price. All of the statements are true about CMOs. A. coupon rate remains at 4% Riverstone Energy Announcement. a. treasury bills There are no new T-Receipt issues coming to market. d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: b. increase prepayment risk to holders of that tranche \textbf{Selected Income Statement Items}\\ f(x)=4 ; x=0 An exception is the interest income received from mortgage backed pass through certificates (issued by GNMA, FNMA, FHLMC). 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. They are sold in $100 minimums at a discount to par value, just like Treasury Bills. B. each tranche has a different yield III. Sallie MaesB. rated based on the credit quality of the underlying mortgages when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? which statements are true about po tranches. c. PAC tranche 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. a. CMBs They are used to create tranches with different risk/return characteristics - so a CDO will have higher risk tranches holding lower quality collateral and lower risk tranches holding higher quality collateral. (It is not a leap year.) The last 3 statements are true. Yield quotes for collateralized mortgage obligations are based upon: A. average life of the trancheB. abbreviation for Collateralized Debt Obligation, this is a structured product that invests in CMO tranches and was used to create tranches based on underlying sub-prime mortgages. A. "5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). IV. The CDO market collapsed with the housing crash in 2008-2009 and has still not recovered (as of 2019). If prepayments increase, they are made to the Companion class first. I. There were no dividends. Treasury "STRIPS" and Treasury Receipts are bonds which have been stripped of coupons - essentially they are zero coupon Treasury obligations. Ginnie Mae Pass-Through certificates are U.S. Government guaranteed, so trades settle in Fed Funds. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. 2/32nds = .0625% of $1,000 par = $.625. C. Treasury Bonds 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. D. Targeted Amortization Class, Which of the following statements are TRUE when comparing CMO PAC tranches to Companion tranches? I, II, III, IV. The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pools: A. standard deviation of returnsB. Which statements are TRUE regarding CMOs? Prepayment speed assumption TACs are like a one-sided PAC - they protect against prepayment risk, but not against extension risk. Fannie Mae debt securities are non-negotiable, Fannie Mae is a publicly traded company which statements are true about po tranches. Certificates are issued in minimum $25,000 denominations. C. Series EE Bonds III. I, II, III, IV. The CMO takes on the credit rating of the underlying collateral. T-Notes are issued in book entry form with no physical certificates issued This pool, with say an average life of 12 years, is chopped-up into many different tranches, each with a given expected life. 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. Fannie Maes. 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. 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. 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). Which statement is TRUE about PO tranches? The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. Do not confuse this with the "average life" of the mortgages in the pool that backs the CMO. I. Fannie Mae is a publicly traded company 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. C. the trade will settle in Fed Funds Treasury Bonds are issued in either bearer or registered form The principal portion of a fixed rate mortgage makes smaller payments in the early years, and larger payments in the later years. FRB 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. Government agency securities have an indirect backing (or implicit) by the U.S. Government. (31) 3351-3382 | 3351-3272 | 3351-3141 | 3351-3371. puppies for sale in nc under 200 associe-se. All of the following statements are true about Treasury Bills EXCEPT: A. the U.S. Treasury issues 1 week T- BillsB. Principal only strips are. It is primarily associated as a tranche of a collateralized mortgage obligation (CMO), which also. Compute the derivative of the given function and find the slope of the line that is tangent to its graph for the specified value of the independent variable. Ginnie Mae obligations trade at higher yields than Fannie Mae obligations When interest rates rise, the price of the tranche falls Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: 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. B. 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). All of them Thus, because the PAC has lowered prepayment and extension risk, its yield will be lower than the surrounding Companion classes. Both securities are sold at a discount II. I. All of the tranches are issued on the same date; but the maturities extend over a sequence of years. Treasury Bonds C. In periods of inflation, the principal amount received at maturity will be par Planned amortization classD. D. Treasury Bond. When the bond matures, the holder receives the higher principal amount. Collateral trust certificate. 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. The note pays interest on Jan 1st and Jul 1st. Zero Tranche. which statements are true about po tranchesmichelle woods role on burn notice. Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. Thus, the certificate was priced as a 12 year maturity. All of the following trade "and interest" EXCEPT: Of the choices offered, which security is least subject to purchasing power risk? In periods of inflation, the amount of each interest payment will increase d. risk of loss of principal if interest rates rise, risks of default if homeowners do not make their mortgage payments, All of the following statements are true about the government national mortgage association pass-through certificates EXCEPT: the market is regulated by the SEC, the trading market is very active, with narrow spreads, Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? Thus, PACs have lower extension risk than plain vanilla CMO tranches. Contract settlement by cash has different economic effects from those of a settlement by delivery. A. PAC tranches increase prepayment risk to holders of that tranche For example, 30 year mortgages are now typically paid off in 10 years - because people move. Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. c. treasury bonds 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. 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.