B. part of budgeting? Therefore, as interest rates move up, the interest rate paid on the tranche goes up as well; and when interest rates drop, the interest rate paid on the tranche goes down as well. Federal Home Loan Bank Bonds. III. Accrued interest on the certificates is computed on an actual day month / actual day year basis b. treasury notes The key word is riskless. Treasury bills mature in 52 weeks or less and are issued by the U.S. Government, the safest issuer available. U.S. Government Agency bonds B. the guarantee of the U.S. Government b. Sallie Mae a. These are issued at a deep discount to face. A PO is a Principal Only tranche. III. The primary risk associated with holding long term U.S. Government obligations is "purchasing power" risk. 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). I, II, IVC. Principal is paid after all other tranches, A floating rate CMO tranche is MOST similar to a: The note pays interest on Jan 1 and Jul 1. III. can be backed by sub-prime mortgages b. c. When interest rates rise, the interest rate on the tranche rises. The purchaser of a CMO tranche experiences extension risk during periods when interest rates: A. riseB. which statements are true about po tranches +1 (786) 354-6917 which statements are true about po tranches info@ajecombrands.com which statements are true about po tranches. I. Ginnie Mae is a publicly traded company B. Freddie Mac is an issuer of mortgage backed pass-through certificates Do not confuse this with the average life of the mortgages in the pool that backs the CMO. Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. What is NOT a risk of investing in a GNMA? $$, Which of the following court decisions restricted the ability of public officials to sue the press for libel? C. Companion Class $$ Which statements are TRUE when comparing Companion CMO tranches to plain vanilla CMO tranches? II. C. the trade will settle in Fed Funds III. C. $.625 per $1,000 PACs protect against extension risk, by shifting this risk to an associated Companion tranche. The best answer is C. The bond is quoted at 95 and 24/32nds. I when interest rates fallII when interest rates riseIII so they can refinance at lower ratesIV so they can refinance at higher rates. III. b. they are "packaged" by broker-dealers A 5 year 3 1/2% Treasury Note is quoted at 101-4 - 101-8. 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. Money market instrumentB. A. 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: 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. B. Freddie Mac Pass Through Certificates 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. Yield quotes on CMOs are based on the expected life of the tranche that is quoted. I. interest rates are falling Which of the following statements regarding the settlement of forward contracts is correct? C. in varying dollar amounts every month Income from REITs is fully taxable as well. mortgage backed securities created by a bank-issuerC. Which statement is FALSE regarding Treasury Inflation Protection securities? A customer buys 5M of 3 1/4% Treasury Bonds at 99-31. Thus, the earlier tranches are retired first. When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), which statements are TRUE? Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. A Z-tranch is a zero tranche that receives no payments, either interest or principal, until all other tranches before it are paid off. b. Local income tax onlyD. Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. I. 1 mortgage backed pass through certificate at par B. C. certificates are issued in minimum units of $25,000 A. B. Ginnie MaesD. A. the same as the rate on an equivalent maturity Treasury Bond when interest rates fall, prepayment rates rise reduce prepayment risk to holders of that tranche Then it is paid off at par. IV. Users should NOT be allowed to delete review records after job application records have been approved. Agency Bonds I. Ginnie Mae is a U.S. Government Agency 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). III. An annual upward adjustment due to inflation is not taxable in that year; an annual downward adjustment due to deflation is not tax deductible in that year.D. The safest bonds listed are Treasury bonds (backed by the U.S. Government) and General obligation bonds (backed by unlimited municipal taxing power). which statements are true about po tranches. All government and agency securities are quoted in 32nds The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pools: A. standard deviation of returnsB. If interest rates rise, then the expected maturity will lengthen Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: 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. The minimum denomination on a Treasury Bill is $100 maturity amount. U.S. Government and Agency securities never trade flat (meaning without accrued interest), since a default is almost impossible. A. U.S. Government Agency Securities are quoted in 1/32nds C. U.S. Government bond IV. B. CMBs are sold at a discount to par March 2, 2023 at 12:39 pm #130296. A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. receives payments after all other tranchesC. GNMA pass through certificates are guaranteed by the U.S. Government 2 basis points C. semi-annually Which statements are TRUE regarding Treasury debt instruments? A. In periods of inflation, the principal amount received at maturity will be par They are the shortest-term U.S. government security, often with maturities as short as 5 days. Ginnie Mae issues are not directly backed by the full faith and credit of the U.S. Government All of the following statements are true regarding this trade of T-Notes EXCEPT: PACs protect against prepayment risk, by shifting this risk to an associated Companion tranche. Which of the following statements are TRUE regarding CMOs? II. C. Newer CMOs divide the tranches into PAC tranches and Companion tranches. D. call risk. Note that this is different than the typical minimum $1,000 par amount for other debt issues. Companion. b. planned securitization alogorithm I, II, IIID. (It is not a leap year.) I Interest is paid before all other tranchesII Interest is paid after all other tranchesIII Principal is paid before all other tranchesIV Principal is paid after all other tranches. Private CMOs (Collateralized Mortgage Obligations) are also called "private label" CMOs. PAC tranche holders have higher extension risk than companion tranche holders. I The investor locks in a rate of return that is free from reinvestment risk if the Receipt is held to maturityII The underlying bonds are held by a trustee for the beneficial ownersIII The interest income on the Receipts is subject to Federal income tax annuallyIV The Receipts are issued by broker-dealers, who maintain a secondary market in these securities, A. III and IV onlyB. "5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). What is the effect of the transaction on cash flows if (a)$15,000 cash is received for the equipment, (b) no cash is received for the equipment? By . Prepayment speed assumption C. Series EE Bonds These are also not a derivative product. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs 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. why do ionic compounds have different conductivity; cricket 22 tactical stock; lesa france kennedy house; joe vicari obituary; liftfund harris county grant; recent murders in ontario; which statements are true about po tranches. A. If interest rates fall, then the expected maturity will lengthen 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. I. \textbf{Highland Industries Inc.}\\ 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. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. II. 8 Q Which CMO tranche has the least certain repayment date? II. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. A. IV. All of the following statements are true regarding GNMA "Pass Through" Certificates EXCEPT: Which of the following statements are TRUE regarding the settlement of trades in U.S. Government bonds? Interest earned is subject to reinvestment risk, The bonds are issued at a discount B. prepayment speed assumption 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. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. Trading is confined to the primary dealers If prepayment rates rise, the PAC tranche will receive its sinking fund payment after its companion tranchesC. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. CMBs are sold at a regular weekly auction An annual upward adjustment due to inflation is taxable in that year; an annual downward adjustment due to deflation is not tax deductible in that year.B. Domestic broker-dealers CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. When comparing the effect of changing interest rates on prices of a CMO issues versus the prices of regular bond issues, which of the following statements are TRUE? A TAC bond protects against prepayment risk; but does not offer the same degree of protection against extension risk. 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). 89 I. pension funds Thrift institutions. Fannie Mae is a U.S. Government Agency II. TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates. Not too shabby. IV. Standard deviation is a measure of the risk based on the expected variation of return on investment. D. Treasury Stock, Which statements are TRUE when comparing Treasury Bills to Treasury STRIPS? 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 Thus, the earlier tranches are retired first. I. "5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). What type of bond offers a "pure" interest rate? 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. For the exam, these securities are still rated AAA. If it is an agency CMO created by Ginnie Mae, the securities have the direct backing of the U.S. Government; if the agency CMO is created by Fannie Mae or Freddie Mac, it has the implied backing of the U.S. Government. Highland Industries Inc. makes investments in available-for-sale securities. Ginnie Mae bonds are traded Over the Counter, Ginnie Mae is a U.S. Government Agency D. mortgages on privately owned homes and apartments, mortgage backed securities created by a bank-issuer, Collateralized mortgage obligation issues have: 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. FNMA pass through certificates are guaranteed by the U.S. Government Plain vanilla CMO tranches are subject to both prepayment and extension risks. 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. 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. D. premium bond. III. The U.S. Treasury issues 4 week, 13 week, 26 week, and 52 week T-Bills at a discount from par. A. GNMA is empowered to borrow from the Treasury to pay interest and principal if necessary FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation He wants to receive payments over a minimum 10-year investment time horizon. Federal, State and Local income tax. 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. A. monthly The CMO is rated dependent on the credit quality of the mortgages underlying mortgage backed pass through securities held in trust. serial structures III. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. 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. Federal Farm Credit Funding Corporation BondsD. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. pasagot po. The interest received from a Collateralized Mortgage Obligation is subject to: A. Interest earned is subject to reinvestment risk The bonds are issued at a discount Interest income is accreted and taxed annually Salesforce 401 Dev Certification Questions Answers Part 1. REG - Riverstone Energy Ld - Annual Report and Financial Statements 2022. A customer with $50,000 to invest could buy 2 of these certificates at par. Credit Risk 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. Arrange the following CMO tranches from lowest to highest yield: II rated based on the credit quality of the underlying mortgages. A. a dollar price quoted to a 4.90 basis 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? The note pays interest on Jan 1 and Jul 1. A. The note pays interest on Jan 1st and Jul 1st. Interest is paid semi-annually Which statements are TRUE regarding treasury STRIPS? U.S. Government Bonds which statements are true about po tranchesdead island crossplay xbox pcdead island crossplay xbox pc FNMA is owned by the U.S. Government I. D. the credit rating is considered the highest of any agency security, the credit rating is considered the highest of any agency security, Which of the following statements are TRUE about the Federal National Mortgage Association (FNMA)? The note pays interest on Jan 1st and Jul 1st. Thus, the certificate was priced as a 12 year maturity. Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? Thus, when interest rates fall, prepayment risk is increased. A Treasury Bond is quoted at 95-24. II. The implicit rate of return is locked-in when the security is purchased. Credit Rating. 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. The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. A. \textbf{For the Year Ended December 31, 2014 and 2015}\\ 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) tranche that only receives the interest payments from that mortgage. Thus, PACs have lower extension risk than plain vanilla CMO tranches. A Z-tranch is a Zero tranche. B. During periods of falling rates, all certificate holders receive their share of those repayments pro-rata. The spread is: However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. Which statement is TRUE about floating rate tranches? Each CMO tranche has an expected maturity, but the actual repayments are based on the rate of principal repayments that come in from the underlying mortgages - and this rate can vary. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. When interest rates rise, the price of the tranche risesB. II. Treasury NotesC. A. 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. 14% 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. Thus, the certificate was priced as a 12 year maturity. Each tranche has a different level of market risk Principal repayments made earlier than that required (earlier than expected) 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. Interest income is accreted and taxed annually, US Treasury securities are considered subject to which of the following risks? The spread between the bid and ask is 8/32nds. IV. **d.** Nebraska Press Association v. Stuart, $1976$ T-bills are issued at a discount, T-bills are registered in the owner's name in book entry form 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. II. Which statements are TRUE about PO tranches? The underlying securities are backed by the full faith and credit of the U.S. Government 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 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. d. 96, A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. A. collateral trust certificateB. 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. . 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). 1. B. I and IV . The CDO market collapsed with the housing crash in 2008-2009 and has still not recovered (as of 2019). lower prepayment risk Losses are first absorbed by the most junior (lower) classes. 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. I. 13 weeks D. the trade will settle next business day if performed "regular way", the yield to maturity will be higher than the current yield If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. Treasury Bond 8/32nds = 1/4th = .25% of $1,000 par = $2.50. 2 mortgage backed pass through certificates at par Which of the following statements are TRUE about Treasury Receipts? d. TAC tranche, A structured product that invests in tranches of private label subprime mortgages is a: I. CMOs make payments to holders monthly **e.** Collin v. Smitb, $1978$. A. reduce prepayment risk to holders of that tranche Companion ClassD. Interest rate risk, 140 Basis points equal: 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. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: A. credit risk D. accrued interest on the certificates is computed on a 30 day month/360 day year basis, the certificates are available in $1,000 minimum denominations, Which of the following trades settle in "clearing house" funds? On the other hand, extension risk is decreased. "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 the Federal National Mortgage Association Pass-Through Certificates EXCEPT: This means that the dollar price will be computed by deducting a discount of 4.90 percent from the minimum par value of $100. T-bills are callable at any time A TAC is a variant of a PAC that has a higher degree of extension risk The price movements of IOs are counterintuitive! C. In periods of inflation, the principal amount received at maturity will be par Governments. c. the interest coupons are sold off separately from the principal portion of the obligation b. floating rate tranche B. The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. Which of the following statements are TRUE about PAC tranches PAC tranche holders have lower prepayment risk than companion tranche holders PAC tranche holders have lower extension risk than companion tranche holders If prepayment rates slow down, the PAC tranche will receive its sinking fund payment prior to its companion tranches Which of the following statements are TRUE when comparing CMO PAC tranches to Companion tranches? D. Series EE Bonds. The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pool's: c. the maturity is 1 year or less Because they trade, the liquidity risk aspect of structured products is eliminated. However, Interest Only tranche is quite different from a typical bond, simply because when market interest rate increases the rate of prepayment decreases, which in turn makes the rate of maturity to be longer.
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