Mortgage backed pass-through certificate c. T-bills have a maximum maturity of 9 months 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. A Z-tranch is a zero tranche that receives no payments, either interest or principal, until all other tranches before it are paid off. Which statements are TRUE about private CMOs? C. In periods of inflation, the principal amount received at maturity will be par ( Targeted Amortization Class f(x)=4 ; x=0 All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? 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. when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall 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. Thrift institutions are not permitted to be primary dealers. $$ b. treasury bills \textbf{Selected Balance Sheet Items}\\ Newer CMOs divide the tranches into PAC tranches and Companion tranches. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. Each tranche has a different expected maturity, Each tranche has a different level of market risk which statements are true about po tranches. II. III. The PAC class has a lower level of prepayment risk than the Companion class, Which statement is TRUE about a Targeted Amortization Class (TAC)? Federal income tax onlyB. These are also not a derivative product. C. Pay interest at maturity A. Contract settlement by cash has different economic effects from those of a settlement by delivery. which statements are true about po tranches. IV. From the basis quote, the dollar price is computed. D. expected interest rate, The nominal interest rate on a TIPS is: b. Sallie Mae A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. b. monthly Treasury STRIPS Therefore, both PACs and TACs provide call protection against prepayments during period of falling interest rates. C. Credit risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds 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. IV. The interest received from a Collateralized Mortgage Obligation is subject to: A. A. the certificates are quoted on a percentage of par basis in 32nds In periods of deflation, the amount of each interest payment will decline Targeted Amortization Class. 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. IV. They have a much higher minimum to discourage small investors (who tend to be less sophisticated) from buying them - because they have difficult to quantify risks of shortening or lengthening maturities, due to interest rates falling or rising, respectively. Principal repayments made earlier than expected are applied to the PAC prior to being applied to the Companion tranche I. B. Which security has, as its return, the pure interest rate? II. 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. A Targeted Amortization Class (TAC) is a variant of a PAC. 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. 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. B. lower prepayment risk What is the current yield, disregarding commissions? rated based on the credit quality of the underlying mortgages D. Guaranteed by the U.S. Government, Which of the following statements are TRUE about the Government National Mortgage Association (GNMA)? When interest rates rise, prepayment rates rise II. Question 6 You bought a CMO tranche that does not receive any cash flows until all other tranches have been repaid and whose principal grows at a predetermined rate each period. treasury STRIPS, All of the following statements are TRUE about treasury receipts EXCEPT: II. IV. D. Treasury Stock, Which of the following are TRUE statements about Treasury Bills? B. interest payments are subject to state and local tax Foreign broker-dealers FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation Treasury securities are the safest investment - they have virtually no credit risk (default risk) and almost no marketability risk. collateralized mortgage obligationD. Yield quotes for collateralized mortgage obligations are based upon: III. receives payments after all other tranchesC. II. 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. If the mortgages backing a Ginnie Mae Pass Through Certificate are prepaid (if interest rates have dropped), the certificate holder receives payments that are a return of principal, and that, when reinvested at lower current rates, produce a lower return (this is reinvestment risk). B. security which is backed by the full faith, credit, and taxing power of the U.S. Government Thus, the prepayment rate for CMO holders will increase. Holders of CMOs receive interest payments: B. the yield to maturity will be higher than the current yield I. . Each tranche of a CMO, in effect, represents a differing expected maturity, hence each tranche has a different level of market risk. Treasury Bond III. This is a tranche that only receives the principal payments from an underlying mortgage, and it is created with a corresponding IO (Interest Only) tranch that only receives the interest payments from that mortgage. A. GNMA is empowered to borrow from the Treasury to pay interest and principal if necessary d. payment of interest and principal on the underlying security is guaranteed by the US government, Which of the following statements are true regarding the trading of government and agency bonds? C. Plain Vanilla Tranche There are no new T-Receipt issues coming to market. 2 mortgage backed pass through certificates at par 15 year standard lifeD. III. Macaulay durationD. \textbf{For the Year Ended December 31, 2013, 2014 and 2015}\\ C. Treasury STRIP 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 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. U.S. Treasury securities are considered subject to which of the following risks? III. Treasury Bills, The nominal interest rate on a TIPS approximates the: Income from REITs is fully taxable as well. The dollar price of a $1,000 par bond is: A $950.24 B $952.40 C $957.50 D $1,000.00. $$ I and IVC. a. CMOs are available in $1,000 denominations D. $5,000, A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. When interest rates rise, the price of the tranche falls If interest rates fall, then the average maturity will shorten, due to a higher prepayment rate than expected. There is no such thing as an AAA+ rating; AAA is the highest rating available. All pass through certificates pass on the monthly mortgage payments received from the pooled mortgages to the certificate holders. If interest rates drop, homeowners will refinance their mortgages, increasing prepayment rates on CMOs III. 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. B. IV. Beitrags-Autor: Beitrag verffentlicht: 22. Treasury note. Reinvestment risk is greater for Ginnie Maes than for U.S. T-Bills have a maximum maturity of 2 years In periods of inflation, the amount of each interest payment will increase Highland Industries Inc. makes investments in available-for-sale securities. Which statement is TRUE about floating rate tranches? Treasury Bonds C. Macaulay duration All of the following would be considered examples of derivative products EXCEPT: lower extension riskC. PAC tranche holders have lower prepayment risk than companion tranche holdersD. which statements are true about po tranches. In periods of inflation, the principal amount received at maturity will be par B. Freddie Mac is an issuer of mortgage backed pass-through certificates If interest rates drop, the market value of CMO tranches will decrease These are issued at a discount to face and each interest payment made brings the notional principal of the bond closer to par. IV. 26 weeks on the same day as trade date Note, however, that the PSA can change over time. 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 customer buys 1 note at the ask price. a. the full faith and credit of the US governments backs the securities underlying the issue I. Treasury STRIPD. B. the certificates are available in $1,000 minimum denominations A. b. treasury notes IV. T-bills are issued at a discount, Which statements are TRUE regarding treasury STRIPS? IV. The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? When interest rates rise, the price of the tranche falls are volatile. \end{array} A companion tranche is a class, or type, of tranche, which is a portion of a debt or security. IV. Thus, PACs have lower prepayment risk than plain vanilla CMO tranches. 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 underlying mortgage backed pass-through certificates are issued by agencies such as FNMA, GNMA and FHLMC, all of whom have an AAA (Moodys or Fitchs) or AA (Standard and Poors) credit rating. C. Planned amortization class b. 1 mortgage backed pass through certificate at par b. taxable in that year as interest income received At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. Furthermore, as interest rates drop, the value of the fixed income stream received from those mortgages increases, so the market value of the security will increase. 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). 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? are made semi-annually interest payments are exempt from state and local tax Thus, the certificate was priced as a 12 year maturity. What is NOT a risk of investing in a GNMA? 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. B. Freddie Mac Pass Through Certificates PACs protect against extension risk, by shifting this risk to an associated Companion tranche. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. These trades are settled through NSCC - the National Securities Clearing Corporation. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. 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. Because these T-Notes are trading at a premium, the yield to maturity will be lower than the current yield. The PAC tranche is a "Planned Amortization Class." Each tranche has a different expected maturity, All of the following statements are true about "plain vanilla" CMO tranches EXCEPT: D. premium bond. Which of the following statements are true? in subculturing, when do you use the inoculating loop cactus allergy . There could be more than one bond class (or tranche), and bond classes vary depending on how they will share any losses resulting from borrowers' defaults (or prepayment, which we will see later). Approximately how much will the customer pay, disregarding commissions and accrued interest? Thereby when interest rates increase, prices increase, and vice versa. Treasury bill These are issued at a discount to face and each interest payment made brings the "notional principal" of the bond closer to par. 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. T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve Regulations: Securities Exchange Act of 1934, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Daniel F Viele, David H Marshall, Wayne W McManus, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman. A. A. zero coupon bond There were no dividends. No certificates are issued for book entry securities; the only ownership record is the "book" of owners kept by the transfer agent. Securities and Exchange Commission individual wishing to avoid reinvestment risk, money market funds Which statements are TRUE about IO tranches?Which statements are TRUE about IO tranches? IV. Newer CMOs divide the tranches into PAC tranches and Companion tranches. When interest rates rise, the price of the tranche rises individuals seeking current income Real Estate Investment Trusts These represent a payment of both interest and principal on the underlying mortgages. C. 15 year standard life Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. d. taxable at maturity, taxable in that year as interest income received, Which CMO tranche is least susceptible to interest rate risk? A. CMBs are used to smooth out cash flow In periods of deflation, the principal amount received at maturity is unchanged at par, Which statement is FALSE regarding Treasury Inflation Protection securities? \textbf{Highland Industries Inc.}\\ Freddie Mac - Federal Home Loan Mortgage Corporation - buys conventional mortgages from financial institutions and packages them into pass through certificates. I. The current yield of the Treasury Bond is: Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? Which of the following statements are TRUE regarding CMOs? Thus, the average life of pass-through certificates that represent ownership of that mortgage pool will shorten; as will the average life of CMO tranches which are derived from those certificates (though not to the same extent). B. can be backed by sub-prime mortgages $$ A newer version of a CMO has a more sophisticated scheme for allocating cash flows. Treasury Bills are not subject to reinvestment risk because they are essentially short term "zero-coupon" obligations. III. \text{Unrealized gain (loss) on available-for-sale investments}&&&(16,400)\\ 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. CMO Targeted Amortization Classes (TACs) have: c. predicted standardization amortization Non-callable funded debtC. III. Thus, the certificate was priced as a 12 year maturity. A. Which statements are TRUE regarding the principal repayments for Companion CMO tranches? Payments to holders of Ginnie Mae pass-through certificates: how to build a medieval castle in minecraftEntreDad start a business, stay a dad. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. II. Sallie Mae stock is listed and trades 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. I. Fannie Mae is a publicly traded company b. risk of early prepayment of mortgages if interest rates fall B. CMOs receive the same credit rating as the underlying pass-through securities held in trust A Treasury Bond is quoted at 95-24. 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. TACs are like a one-sided PAC - they protect against prepayment risk, but not against extension risk. III. are stableD. If this distribution well models the applicant pool, a randomly chosen applicant would have what probability of scoring in the following regions? c. risks of default if homeowners do not make their mortgage payments interest rates are rising III. 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. Prepayment risk The CMO is backed by mortgage backed securities created by a bank-issuer Credit Risk A. PAC tranche Treasury Bonds are traded in 32nds U.S. Government and Agency securities never trade flat (meaning without accrued interest), since a default is almost impossible. Which statements are TRUE regarding collateralized mortgage obligations? The best answer is C. A PO is a Principal Only tranche. Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. B. \hline II. Thus, the earlier tranches are retired first. d. TAC tranche, A structured product that invests in tranches of private label subprime mortgages is a: Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche. It is primarily associated as a tranche of a collateralized mortgage obligation (CMO), which also. 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). Mortgage backed pass-through certificateC. vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. Arrange the following CMO tranches from lowest to highest yield: II rated based on the credit quality of the underlying mortgages. Thus, the earlier tranches are retired first. Treasury bondB. II. b. A. All of the following statements are true about Treasury Bills EXCEPT: A. the U.S. Treasury issues 1 week T- BillsB. Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: A. IV. $35.00 A customer has heard about the explosive growth in China and wants to make . I. GNMA is a publicly traded corporation When interest rates rise, the price of the tranche rises 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. 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. Plain VanillaC. All of the following statements are true regarding this trade of T-notes EXCEPT: CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche A mortgage-backed security (MBS) that goes through this processseparating the interest and. which statements are true about po tranchesmichelle woods role on burn notice. However, T-Receipts still trade until they all mature. 1. A customer will buy at the ask price, which is 98 and 9/32nds = 98.28125% of $5,000 par = $4,914.06. Ginnie Mae obligations trade at higher yields than Fannie Mae obligations One of the question asked in certification Exam is, Which statement is true about personas? III. A. discount rate A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. Sallie Mae is wholly owned by the U.S. Government Plain vanilla CMO tranches are subject to both prepayment and extension risks. Thus, the earlier tranches are retired first. The bonds are issued at a discount III. Plain vanillaB. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. IV. C. discount bond Treasury bond Treasury STRIPS are quoted in 32nds $10,000D. They are auctioned off weekly by the Federal Reserve acting as agent for the U.S. Treasury. Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like "wild cards" - whatever is left over is what you get! 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. $.0625 per $1,000 I CMO prices fall slower than similar maturity regular bond pricesII CMO prices fall faster than similar maturity regular bond pricesIII The expected maturity of the CMO will lengthen due to a slower prepayment rate than expectedIV The expected maturity of the CMO will lengthen due to a faster prepayment rate than expected. b. CMOs make payments to holders monthly 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? Plain vanilla Interest rate risk, Extended maturity risk The CMO is rated AAA If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. The note pays interest on Jan 1st and Jul 1st. II and III onlyC. PAC tranches increase prepayment risk to holders of that tranche The Stanford-Binet test scores are well modeled by a Normal model with a mean of 100 and a standard deviation of 16. Collateral trust certificate. (Attachments: # 1 Civil Cover Sheet) (Khoury, Cholla) (Entered: 06/30/2021). C. option FHLMC asked Jul 31, 2019 in Agile by sheetalkhandelwal. Conventional Treasury Bonds are subject to this risk, since interest payments are received semi-annually. 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. A. interest accrues on an actual day month; actual day year basis 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. taxable at maturity. Dealers typically quote agency securities, including Ginnie Maes, on a basis point differential to equivalent maturing U.S. When interest rates rise, the price of the tranche risesC. All of the following statements are true regarding this trade of T-Notes EXCEPT: II. II and IIID. I. IV. II. For example, 30 year mortgages are now typically paid off in 10 years - because people move. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. I. PAC tranches reduce prepayment risk to holders of that tranche Federal Home Loan Bank Bonds. C. Municipal bonds III. Which statement is FALSE regarding Treasury Inflation Protection securities? 4 weeks a. interest is paid at maturity III. Which statement is TRUE about floating rate tranches? Which statements are TRUE about PO tranches? \text{Retained earnings}&\$175,400&\$220,000&\\ CMOs are subject to a lower level of prepayment risk than the underlying pass-through certificates This is extension risk - the risk that the CMO tranche will have a longer than expected life, during which a lower than market rate of return is earned. Treasury "STRIPS" and Treasury Receipts are bonds which have been stripped of coupons - essentially they are zero coupon Treasury obligations. Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. c. Office of the Comptroller of Currency Which statement is TRUE about IO tranches? Ch.2 - *Quiz 2. holders of "plain vanilla" CMO tranches have lower prepayment risk 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? CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations What is the current yield, disregarding commissions? I, II, IIIC. Their focus is on obtaining deposits that are then used to make mortgages to homeowners. B. quarterly 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. III. 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. FHLB, A collateralized mortgage obligation is best defined as a(n): T-bills are issued in bearer form in the United States 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.
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which statements are true about po tranches