which statements are true about po tranchesdelgado family name origin
& 2014 & 2015 \\ T-Notes are issued in bearer form. Unlike regular bonds, where when interest rates rise, prices fall, with an IO, when interest rates rise, prices rise! when interest rates fall, prepayment rates rise, CMO "planned amortized classes" (PAC tranches): III. A. reduce prepayment risk to holders of that tranche The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. II. b. Treasury STRIPS are not suitable investments for individuals seeking current income Treasury "STRIPS" and Treasury Receipts are bonds which have been stripped of coupons - essentially they are zero coupon Treasury obligations. Thus, because the PAC has lowered prepayment and extension risk, its yield will be lower than the surrounding Companion classes. B. interest payments are exempt from state and local tax These are issued at a discount to face and each interest payment made brings the notional principal of the bond closer to par. B. Newer CMOs divide the tranches into PAC tranches and Companion tranches. D. Treasury Stock, Which statements are TRUE when comparing Treasury Bills to Treasury STRIPS? B. Which statement is TRUE about floating rate tranches? II. In periods of inflation, the amount of each interest payment will increase **d.** Nebraska Press Association v. Stuart, $1976$ IV. derivative product State income tax onlyC. Sallie MaesB. T-Notes are issued in book entry form with no physical certificates issued C. Treasury STRIP A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. 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. \textbf{For the Year Ended December 31, 2014 and 2015}\\ What type of bond offers a "pure" interest rate? I. I CMOs make payments to holders monthlyII CMOs receive the same credit rating as the underlying pass-through securities held in trustIII CMOs are subject to a lower level of prepayment risk than the underlying pass-through certificatesIV CMOs are available in $1,000 denominations, A. II, III, IVB. 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. CMOs are backed by agency pass-through securities held in trustC. Treasury Bill They do have purchasing power risk (the risk of inflation eroding real returns), but this is only an issue for long-term maturities. Macaulay durationD. c. predicted standardization amortization Treasury Bills are not subject to reinvestment risk because they are essentially short term "zero-coupon" obligations. A customer who wishes to buy 1 Treasury Bill will pay: The best answer is A. There were no dividends. I. the trading market is very active, with narrow spreads Newer CMOs divide the tranches into PAC tranches and Companion tranches. A. zero coupon bond Fannie Mae issues are directly backed by the full faith and credit of the U.S. Government GNMA securities are guaranteed by the U.S. Government. on the business day after trade date, through the Federal Reserve System T-Notes are sold by negotiated offering When the bills mature, the difference between the purchase price and the redemption value at par is taxable as interest income. Treasury bill prices are rising, interest rates are falling Ginnie MaesD. The smallest denomination available for Treasury Bills is: A. Governments. At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. I. through a National Securities Clearing Corporation Planned Amortization Class All of the following statements are true regarding collateralized mortgage obligations EXCEPT: A. CMOs are issued by local government agenciesB. Note, however, that the "PSA" can change over time. When interest rates rise, the interest rate on the tranche falls. If interest rates fall, then the expected maturity will shorten Thrift institutions. Fully depreciated equipment costing $50,000 is discarded. C. 15 year standard life Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A government bond dealer is making good delivery to another government dealer. chelcee grimes wedding pictures; d. 96, A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. CMO issues are rated AAAC. The service limit is set by administrators to allow users to use the required resources. 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. FRB CMOs receive the same credit rating (AAA or AA) as the underlying mortgage backed pass-through certificates held in trust. The dollar price of a $1,000 par bond is: A $950.24 B $952.40 C $957.50 D $1,000.00. 15 year standard lifeD. Principal repayments made earlier than expected are applied to the PAC prior to being applied to the Companion tranche $25 per $1,000. III. C. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: 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). I. Sallie Mae is a privatized agency Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. B. Freddie MacsC. A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. 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. III. a. reduce prepayment risk to holders of that tranche There are no new T-Receipt issues coming to market. 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. 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. The housing bubble that ended badly in 2008 with a market crash was fueled by massive issuance of sub-prime mortgages to unqualified home buyers, that were then packaged into CDOs and sold to unwitting institutional investors who relied on the credit rating assigned by S&P or Moodys. These represent a payment of both interest and principal on the underlying mortgages. When the bond matures, the holder receives the higher principal amount. A mortgage-backed security (MBS) that goes through this processseparating the interest and. Planned Amortization ClassB. Unlike U.S. 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. Tranches are groups of securities of a firm in which investors invest. Again, these are derived via a formula. loan to value ratio. B. Freddie Mac is an issuer of mortgage backed pass-through certificates 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. Thus, the earlier tranches are retired first. Note, however, that the PSA can change over time. This is the discount earned over the life of the instrument. Interest Rate I. Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. fallC. 8 Q 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. GNMA pass through certificates are guaranteed by the U.S. Government, All of the following statements are true about the Government National Mortgage Association Pass-Through Certificates EXCEPT: a. Fannie Mae There are approximately 20 such firms. CMO issues have the same market risk as regular pass-through certificates. It gets no payments until all prior tranches are retired. 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. If interest rates fall, then the expected maturity will lengthen B. serial structures III. The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. Treasury Bonds Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded The service limit is defined using policy statements in the tenancy. Federal Home Loan Bank Bonds. Which statement is TRUE about PO tranches? If interest rates drop, the market value of CMO tranches will decrease I. One of the question asked in certification Exam is, Which statement is true about personas? b. T-bills are the most actively traded money market instrument Thus, there is no purchasing power risk with these securities. The primary risk associated with holding long term U.S. Government obligations is "purchasing power" risk. a. 1.4% B. step up step down bond When interest rates rise, the interest rate on the tranche fallsD. 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. I. interest rates are falling Treasury BillB. Treasury Notes I. Interest rate risk, 140 Basis points equal: T-Bills have a maximum maturity of 2 years Agency CMOs carry the direct or implied guarantee of the U.S. Government while Private Label CMOs do not have such a guarantee CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations. D. security which gives the holder an undivided interest in a pool of mortgages, security which gives the holder an undivided interest in a pool of mortgages, A customer with $50,000 to invest could buy: Which statements are TRUE about PO tranches? Treasury NoteC. 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. An IO is an Interest Only tranche. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. IV. D. U.S. Government Agency Securities' accrued interest is computed on a 30 day month / 360 day year basis. 4 weeks All of the following statements are true about Treasury Bills EXCEPT: A. the U.S. Treasury issues 1 week T- BillsB. Treasury Bonds These are also not a derivative product. All of them Ginnie Mae is backed by the guarantee of the U.S. Government, making it the highest credit rated agency security. IV. 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. If prepayments increase, they are made to the Companion class first. You have to complete all course videos, modules, and assessments and receive a minimum score of 75% on each assessment to receive credit. Which CMO tranche is LEAST susceptible to interest rate risk? CMOs divide the cash flows into "tranches" of varying maturities; and apply prepayments sequentially to the tranches in order of maturity. During periods of falling rates, all certificate holders receive their share of those repayments pro-rata. D. call risk. D. A TAC is a variant of a PAC that has a lower degree of extension risk. A. FHLB, A collateralized mortgage obligation is best defined as a(n): The spread is: 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. Of the choices listed, Treasury Bonds have the longest maturity. c. taxable in that year as long term capital gains What is not eliminated, however, is credit risk. b. increase prepayment risk to holders of that tranche Planned amortization classD. Companion tranches are the shock absorber tranches, that absorb prepayment risk out of a TAC (Targeted Amortization Class) tranche; or both prepayment risk and extension risk out of a PAC (Planned Amortization Class) tranche. Treasury securities are the safest investment - they have virtually no credit risk (default risk) and almost no marketability risk. These credit ratings agencies really did not understand the complex structure of CDOs and how risky their collateral was (sub-prime mortgage loans that were often no documentation liar loans). Government bond trades settle next business day; accrued interest is computed on an actual month/actual year basis; and trades settle through the Federal Reserve system in "Fed Funds. I. CMOs are backed by agency pass through securities held in trust 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? Thus, the PAC is given a more certain repayment date; while the CMO is given the least certain repayment date. 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. Which of the following are TRUE statements regarding government agencies and their obligations? A. interest accrues on an actual day month; actual day year basis B. a dollar price quoted to a 5.00 basis 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. A. average life of the tranche Treasury Bills marketability risk D. When interest rates rise, the interest rate on the tranche rises, When interest rates rise, the price of the tranche falls, Which statement is TRUE about IO tranches? The last 3 statements are true. The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? U.S. Government debt is sold via competitive bidding at a weekly auction conducted by the Federal Reserve. Each tranche has a different yield I, II, IIID. In periods of deflation, the principal amount received at maturity will decline below par 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? II. Which statements are TRUE about PO tranches? Finally, each American Depositary Receipt represents a fixed number of foreign shares held in trust. 89 \quad\quad\quad\textbf{Stockholders' Equity}\\ Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. d. TAC tranche, A structured product that invests in tranches of private label subprime mortgages is a: CMOs are often quoted on a yield spread basis to similar maturity: 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? are made monthly This is a tranche that only receives the interest payments from an underlying mortgage, and it is created with a corresponding PO (Principal Only) tranche that only receives the principal payments from that mortgage. When interest rates rise, the price of the tranche risesB. When interest rates rise, the interest rate on the tranche rises. The Companion class is given a more certain maturity date than the PAC class If this distribution well models the applicant pool, a randomly chosen applicant would have what probability of scoring in the following regions? The pure interest rate is one that is free of any investment risks - it is the pure cost of borrowing without any risk premium added to the interest rate. Equipment Trust Certificate
which statements are true about po tranches
which statements are true about po tranches