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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. Commercial banks GNMA pass through certificates are guaranteed by the U.S. Government These trades are settled through NSCC - the National Securities Clearing Corporation. Income from REITs is fully taxable as well. c. risks of default if homeowners do not make their mortgage payments through the Federal Reserve System $4,914.06 a. CMBs All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? Also note that even though Standard and Poors downgraded Treasury Debt to an AA+ rating in the summer of 2011, Moodys and Fitchs retained their AAA ratings. CMO "Planned Amortization Classes" (PAC tranches): 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. security which is backed by real property and/or a lien on real estate Furthermore, as interest rates drop, the value of the fixed income stream received from those mortgages increases (since these older mortgages are providing a higher than market rate of return), so the market value of the security will increase. 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. D. combined serial and series structures. The process of separating the principal and interest on a debt obligation is known as stripping. II. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. Fannie Mae is a U.S. Government Agency CMOs are packaged and issued by broker-dealers. B. each tranche has a different yield U.S. Government Bonds 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. Planned Amortization ClassB. REITs are common stock companies that make direct investments in real estate. A 5 year 3 1/2% Treasury Note is quoted at 101-4 - 101-8. Ginnie Mae is a U.S. Government Agency For the exam, these securities are still rated AAA. Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? III. Thus, the earlier tranches are retired first. **a. Again, these are derived via a formula. This makes CMOs more accessible to small investors. \hline \text { Operating income } & \text { } & \text { } \\ when interest rates rise, prepayment rates fall Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds 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. interest payments are exempt from state and local taxes Interest Rate 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? A. the pooling of mortgages of similar maturities to back the security which statements are true about po tranches. Thrift institutions are not permitted to be primary dealers. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? 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. CMO investors are subject to which of the following risks? C. $4,900 The CMO is backed by mortgage backed securities issued by Ginnie Mae, Fannie Mae or Freddie Mac At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. lower extension riskC. III. Fannie Maes. III. Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. I When interest rates rise, the price of the tranche fallsII When interest rates rise, the price of the tranche risesIII When interest rates fall, the price of the tranche fallsIV When interest rates fall, the price of the tranche rises. expected life of the tranche FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation 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? Which statements are TRUE about IO tranches? Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. $4,906.25 Once the Treasury started issuing STRIPS in 1986, there was no need for the middleman anymore. Treasury Bills are typically issued for which of the following maturities? What is NOT a risk of investing in a GNMA? An exception is the interest income received from mortgage backed pass through certificates (issued by GNMA, FNMA, FHLMC). The other agencies are only implicitly backed. When interest rates rise, the interest rate on the tranche rises. B. lower prepayment risk Which statements are TRUE regarding Treasury debt instruments? treasury notes CMOs are often quoted on a yield spread basis to similar maturity: Interest received from all of the following securities is exempt from state and local taxes EXCEPT: Which statements are TRUE regarding Treasury STRIPS? CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations IV. A 70-year old customer who is looking for current income has inquired about purchasing a GNMA pass-through certificate because he has heard that it provides monthly payments. "5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). 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. Targeted Amortization Class. B. U.S. Government Agency 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. If the inflation rate during the first year of the security's life is 5%, the: If interest rates rise, then the expected maturity will lengthen \begin{array}{c} c. predicted standardization amortization Home . D. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds. b. increase prepayment risk to holders of that tranche 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. D. FNMA bond. IV. c. 95 Toutes les tranches du cne tant vues depuis le point O sous le mme angle l'intgration pour z variant de 0 donne : On obtient : On cherche maintenant calculer la perturbation du champ de pesanteur due une montagne, modlise par un cne de densit volumique de masse uniforme. B. prepayment speed assumption Which security has, as its return, the pure interest rate? C. Series EE Bonds Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. C. the same level of prepayment risk but a lower level of extension risk than a Planned Amortization Class I. Note that this is different than the typical minimum $1,000 par amount for other debt issues. I, II, IIIC. Universal Containers has built a recruiting application with 2 custom objects, Job Applications and Reviews, that have a master-detail relationship. $$ serial structures III. A. the certificates are quoted on a percentage of par basis in 32nds Ginnie Mae securities are listed and trade, Interest payments on Ginnie Mae pass-through certificates are made: The dollar price of a $1,000 par bond is: A $950.24 B $952.40 C $957.50 D $1,000.00. Companion The bonds are issued at a discount III. I. Fannie Mae is a publicly traded company Each tranche has a different yield Treasury Notes B. Ginnie Mae issues are not directly backed by the full faith and credit of the U.S. Government I. Ginnie MaesD. Both PACs and TACs offer the same degree of protection against extension riskB. Which statements are TRUE when comparing Companion CMO tranches to plain vanilla CMO tranches? B. higher prepayment risk, but the same extension risk as a Planned Amortization Class A. If interest rates fall rapidly after the mortgage is issued, prepayment rates speed up; if they rise rapidly after issuance, prepayment rates fall. Treasury Notes B. Non- deliverable forwards and contracts for differences have distinct settlement procedures. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. d. the securities are purchased at par, All of the following are true statements regarding both treasury bills and treasury receipts EXCEPT: Macaulay durationD. Agency CMOs are backed by underlying mortgage backed pass-through certificates issued by that agency, while Private Label CMOs are backed only by mortgage backed securities issued by private lenders An IO is an Interest Only tranche. I. Fannie Mae is a publicly traded company When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), all of the following statements are true EXCEPT: A. Ginnie Mae Pass-Through certificates are U.S. Government guaranteed, so trades settle in Fed Funds. A customer has heard about the explosive growth in China and wants to make . A. part of budgeting? GNMA Pass-Through Certificates. III and IV onlyC. b. companion tranche Planned Amortization Class IV. A. Do not confuse this with the average life of the mortgages in the pool that backs the CMO. T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve CMOs are available in $1,000 denominations, as opposed to pass-through certificates that are $25,000 denominations. Freddie Mac - Federal Home Loan Mortgage Corporation - buys conventional mortgages from financial institutions and packages them into pass through certificates. coupon rate remains at 4% Remember, government and agency securities are quoted in 32nds (with the exception of T-Bills, quoted on a yield basis). III. \textbf{For the Year Ended December 31, 2014 and 2015}\\ The price movements of IOs are counterintuitive! I TAC tranches protect against prepayment riskII TAC tranches do not protect against prepayment riskIII TAC tranches protect against extension riskIV TAC tranches do not protect against extension risk. how to put bobbin case back together singer; jake gyllenhaal celebrity look alike; carmel united methodist church food pantry hours; new year's rockin' eve 2022 performers Thus, the certificate was priced as a 12 year maturity. It acts like a long-term zero-coupon bond, so it is most susceptible to interest rate risk. Ch.2 - *Quiz 2. If interest rates rise, then the expected maturity will lengthen T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction C. Planned amortization class f(x)=4 ; x=0 Treasury Bond 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. Newer CMOs divide the tranches into PAC tranches and Companion tranches. 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). Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Financial Management, Concise Edition, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. 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. A mortgage-backed security (MBS) that goes through this processseparating the interest and. C. $162.50 Which of the following are TRUE statements regarding government agencies and their obligations? Interest payments are still 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). A. PACs protect against extension risk, by shifting this risk to an associated Companion tranche. C. A TAC is a variant of a PAC that has a higher degree of extension risk 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. State income tax onlyC. The preparation of the audited annual financial statements of the Group was supervised by Mr M Bosman, CA(SA). I. II. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. CMOs are backed by agency pass-through securities held in trustC. The U.S. Treasury issues 4 week, 13 week, 26 week, and 52 week T-Bills at a discount from par. II. The service limit is a quota set on a resource. There is no such thing as an AAA+ rating; AAA is the highest rating available. Trades of which of the following securities will settle in Fed Funds? 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. d. TAC tranche, Which statement is FALSE about CMBs? D. When interest rates rise, the interest rate on the tranche rises. Fannie Mae issues are directly backed by the full faith and credit of the U.S. Government III. Which of the following trade "flat" ? If interest rates drop, the market value of the CMO tranches will increase The first 3 statements are true. 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. represent a payment of both interest and principal Companion ClassD. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A. Fannie Mae Pass Through CertificatesB. A new study recently published in BMC Neuroscience indicates that female brains respond differently to pictures of newborn infants as compared to male brains on average. Holders of CMOs receive interest payments: The certificates are quoted on a yield basis I. A. all at once at maturity date of the tranche purchased B. in constant dollar amounts every month When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), which statements are TRUE? Private CMOs (Collateralized Mortgage Obligations) are also called "private label" CMOs. Which statements are TRUE regarding CMOs? 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. d. privatized syndicated asset, All of the following statements are true regarding CMOs EXCEPT: By . Mortgage backed pass-through certificates are paid off in a shorter time frame than the full life of the underlying mortgages. The note pays interest on Jan 1st and Jul 1st. 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. I Payments are larger in the early yearsII Payments are smaller in the early yearsIII Payments are larger in the later yearsIV Payments are smaller in the later years. I. In periods of inflation, the principal amount received at maturity will be par The spread is: II. taxable in that year as long term capital gainsD. What is the current yield, disregarding commissions? Which statements are TRUE regarding collateralized mortgage obligations? $81.25 C. Agency CMOs take on the credit rating of the underlying agency securities while Private Label CMOs are assigned credit ratings by independent credit ratings agencies vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. D. mortgages on privately owned homes and apartments, mortgage backed securities created by a bank-issuer, Collateralized mortgage obligation issues have: rated based on the credit quality of the underlying mortgages which statements are true about po tranches 16 .. c. the interest coupons are sold off separately from the principal portion of the obligation The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. They are the shortest-term U.S. government security, often with maturities as short as 5 days. I. pension funds 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. Credit Risk Zero Tranche. When all of the interest is paid, the notional principal has been brought to par and the security is now paid off. C. mortgage backed securities issued by a "privatized" government agency 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. 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). A "derivative" product is one whose value is "derived" via a "formula" from an underlying investment. II. IV. American depositary receiptC. Which CMO tranche will be offered at the lowest yield? Which of the following statements are TRUE regarding GNMA "Pass Through" Certificates? A customer will buy at the ask price, which is 98 and 9/32nds = 98.28125% of $5,000 par = $4,914.06. CMOs are often quoted on a yield spread basis to similar maturity: The note pays interest on Jan 1 and Jul 1. I, II, III, IV. IV. Prepayment speed assumption \begin{array}{lccc} All of the following statements are true regarding money market funds EXCEPT: A. typical maturities of securities held in the portfolio are 30 days or less B. fund dividends are not taxable if reinvested in additional shares money market funds are typically sold without a sales charge money market funds impose management fees. Since each tranche represents a differing maturity, the yield on each will differ, as well. The current yield of the Treasury Bond is: Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. Because the principal is being paid back at an earlier date, the price rises. Series EE bonds have no price volatility since they are non-negotiable. II. D. $4,945.00. mortgage backed securities issued by a privatized government agencyD. A. zero coupon bond When all of the interest is paid, the "notional principal" has been brought to par and the security is now paid off. Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like wild cards - whatever is left over is what you get! (It is not a leap year). C. Pay interest at maturity A. 29 terms. The PAC class has a lower level of prepayment risk than the Companion class 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. A. discount rate The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. Federal Reserve Treasury BondD. on the same day as trade date When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. Today 07:16 A $1,000 par Treasury Note is quoted at 101-3 - 101-5. The note pays interest on Jan 1 and Jul 1. Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust.