III. Not too shabby. The CMO purchaser buys a specific tranche. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? The note pays interest on Jan 1 and Jul 1. Ginnie Mae is backed by the guarantee of the U.S. Government, making it the highest credit rated agency security. Treasury STRIPS are quoted on a yield to maturity basis, Treasury Bills are quoted on a yield to maturity basis Mortgage backed pass-through certificates are "paid off" in a shorter time frame than the full life of the underlying mortgages. PACs differ from TACs in that TACs do not offer protection against a decrease in prepayment speedsC. He wants to receive payments over a minimum 10-year investment time horizon. 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. Principal only strips are. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular 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. D. Treasury Stock, Which of the following are TRUE statements about Treasury Bills? IV. But we've saved 90% of the people and identified most of the alien overlords and their centers. Interest earned is subject to reinvestment risk The bonds are issued at a discount Interest income is accreted and taxed annually 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. Again, these are derived via a formula. 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. "Plain vanilla" CMOs are 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. a. GNMA is empowered to borrow from the treasury to pay interest and some principal if necessary Thus, because the PAC has lowered prepayment and extension risk, its yield will be lower than the surrounding Companion classes. III. Thus, the prepayment rate for CMO holders will increase. Fannie Mae issues are directly backed by the full faith and credit of the U.S. Government Plain vanilla CMO tranches are subject to both prepayment and extension risks. A mortgage-backed security (MBS) that goes through this processseparating the interest and. You have to complete all course videos, modules, and assessments and receive a minimum score of 75% on each assessment to receive credit. "5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). Brainscape helps you realize your greatest personal and professional ambitions through strong habits and hyper-efficient studying. b. they are "packaged" by broker-dealers II. Interest is paid semi-annually IV. II. Treasury securities are the safest investment - they have virtually no credit risk (default risk) and almost no marketability risk. T-Bills trade at a discount from par Universal Containers has built a recruiting application with 2 custom objects, Job Applications and Reviews, that have a master-detail relationship. A TAC is a variant of a PAC that has a lower degree of prepayment risk c. CMOs are subject to a higher level of prepayment risk than a pass through certificate IV. D. the trade will settle next business day if performed "regular way", the yield to maturity will be higher than the current yield B. the guarantee of the U.S. Government III. Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds C. $4,900 salt lake city to jackson hole scenic drive; how many convert to islam every year; Treasury Bonds have minimum maturity of more than 10 years, Which investment does NOT have purchasing power risk? Which of the following is an original issue discount obligation? D. the same level of prepayment risk but a higher level of extension risk than a Planned Amortization Class, the same level of prepayment risk but a higher level of extension risk than a Planned Amortization Class, Which statements are TRUE regarding Z-tranches? D. the credit rating is considered the highest of any agency security. A $1,000 par Treasury Note is quoted at 100-1 - 100-9. The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? I. FNMA is a publicly traded corporation 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. Do not confuse this with the "average life" of the mortgages in the pool that backs the CMO. 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. 14% $1,000C. II. 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 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. II. \begin{array}{c} A. B. a dollar price quoted to a 5.00 basis 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. which statements are true about po tranches. b. risk of early prepayment of mortgages if interest rates fall I. coupon rate is adjusted to 9% T-Notes are issued in bearer form. \begin{array}{lccc} Hence the true statements are: What is the scientific name of apple? C. semi-annually When interest rates fall, homeowners do refinance their mortgages, and the prepayment rate will be higher than expected. prepayment speed assumptionC. II. b. taxable in that year as interest income received I and IVC. 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 Companion class has a lower level of prepayment risk than the PAC class, The PAC class is given a more certain maturity date than the Companion class c. semi-annually C. Planned amortization class Payment is to be made in: Which is considered to be a direct obligation of the US government? III. I. The best answer is C. CMBs are Cash Management Bills. B. All of the following investments give a rate of return that cannot be affected by "reinvestment risk" EXCEPT: ( Losses are first absorbed by the most junior (lower) classes. D. In periods of deflation, the principal amount received at maturity is unchanged at par, In periods of deflation, the principal amount received at maturity will decline below par, Which of the following statements about Treasury STRIPS are TRUE? When interest rates rise, prepayment rates rise Which of the following statements are TRUE about computerized trading of securities on exchanges? a. reduce prepayment risk to holders of that tranche How many inches long is a 6236 \frac{2}{3}632-yard roll of aluminium foil? **d.** Nebraska Press Association v. Stuart, $1976$ III. Accrued interest on the certificates is computed on an actual day month / actual day year basis 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. II. (TIPS are usually purchased in tax qualified retirement plans that are tax-deferred. $$ Government agency securities are quoted in 32nds, similar to U.S. Government securities. A TAC is a variant of a PAC that has a higher degree of extension risk 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. market value Both securities pay interest at maturity, The physical securities which are the underlying collateral for Treasury Receipts are: c. T-bills have a maximum maturity of 9 months I, II, IVD. Remember, government and agency securities are quoted in 32nds (with the exception of T-Bills, quoted on a yield basis). The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. Treasury bill I. through a National Securities Clearing Corporation Government agency securities have an indirect backing (or implicit) by the U.S. Government. Treasury Bonds Which CMO tranche has the least certain repayment date? C. U.S. Government bond The longer the maturity, the greater the price volatility of a negotiable debt instrument. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A. Fannie Mae Pass Through CertificatesB. B. in constant dollar amounts every month I. 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. A customer with $50,000 to invest could buy 2 of these certificates at par. matt_omalley. All of the tranches are issued on the same date; but the maturities extend over a sequence of years. CMBs are sold at a regular weekly auction lamar county tx property search 2 via de boleto III. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs The holder is subject to reinvestment risk a. not taxable The note pays interest on Jan 1st and Jul 1st. 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. II. D. derivative product. Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. IV. when interest rates rise, prepayment rates fall Yield quotes on CMOs are based on the expected life of the tranche that is quoted. 8/32nds = 1/4th = .25% of $1,000 par = $2.50. GNMA Pass-Through Certificates. 2 mortgage backed pass through certificates at par

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