A. I, II, IIIC. **e.** Collin v. Smitb, $1978$. & 2014 & 2015 \\ Treasury bill The holder of a specific tranche of a CMO will only receive prepayments after all earlier tranche holders are repaid. When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), which statements are TRUE? II. T-Bills are issued at a discount from par. 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. C. When interest rates rise, the interest rate on the tranche falls Thus, when interest rates fall, prepayment risk is increased. A. GNMA securities are guaranteed by the U.S. Government An IO is an Interest Only tranche. A. B. mutual fund 15 year standard lifeD. Newer CMOs divide the tranches into PAC tranches and Companion tranches. Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds D. Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded. asked Jul 31, 2019 in Agile by sheetalkhandelwal. D. premium bond. individuals seeking current income, Which of the following are issued with a fixed coupon rate? 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. The loan to value ratio is a mortgage risk measure. Treasury Notes Thus, there is no reinvestment risk, since semi-annual interest payments are not received. 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. Federal Farm Credit Funding Corporation Note. A customer buys 5M of the notes. B. Non- deliverable forwards and contracts for differences have distinct settlement procedures. rated based on the credit quality of the underlying mortgages Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: \end{array} which statements are true about po tranches. step up step down bond The best answer is C. The bond is quoted at 95 and 24/32nds. III. II. C. U.S. Government Agency Securities trade flat 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. collateralized mortgage obligationD. I. Companion classes are split off from the Planned Amortization Class (PAC) and act as buffers absorbing prepayment and extension risk prior to this risk being applied to the PAC tranche. III. Which statements are TRUE about PO tranches? A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. a. T-bills are traded at a discount from par Mutual fund shares are not a derivative, because Net Asset Value per share is a direct correlation to the value of total net assets divided by the number of shares outstanding. This means that the dollar price will be computed by deducting a discount of 4.90 percent from the minimum par value of $100. III. d. privatized syndicated asset, All of the following statements are true regarding CMOs EXCEPT: T-Notes are sold by negotiated offering CMBs are sold at a regular weekly auction 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? A. B. This makes CMOs more accessible to small investors. quarterlyC. This pool, with say an average life of 12 years, is chopped-up into many different tranches, each with a given expected life. 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. 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). A TAC bond protects against prepayment risk; but does not offer the same degree of protection against extension risk. The Companion, which absorbs these risks first, has the least 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. If prepayment rates slow down, the PAC tranche will receive its sinking fund payment prior to its companion tranchesB. 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? 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. a. the full faith and credit of the US governments backs the securities underlying the issue Treasury Bonds I. GNMA is a publicly traded corporation 90 B. purchasing power risk We are not the CEOs. For example, 30 year mortgages are now typically paid off in 10 years - because people move. Which of the following statements regarding collateralized mortgage obligations are TRUE? \textbf{For the Year Ended December 31, 2014 and 2015}\\ Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. Treasury Bills The interest received from a Collateralized Mortgage Obligation is subject to: A. The service limit is set by Oracle based on the pricing model. A customer has heard about the explosive growth in China and wants to make . The underlying securities are backed by the full faith and credit of the U.S. Government A PO is a Principal Only tranche. 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: A. C. the trade will settle in Fed Funds A customer buys 5M of the notes. does not receive payments. principal amount is adjusted to $1,050 Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). 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. Which statements are TRUE regarding Treasury debt instruments? If interest rates fall rapidly after the mortgage is issued, prepayment rates speed up; if they rise rapidly after issuance, prepayment rates fall. Income from REITs is fully taxable as well. Which statements are TRUE about private CMOs? III. 1.4% Its price moves just like a conventional long term deep discount bond. IV. IV. Governments, on which accrued interest is computed on an actual day month/actual day year basis, Agency securities' accrued interest is computed on a 30 day month/360 day year basis. Since ETCs are secured by rolling stock, they are safer than Industrial revenue bonds, which are backed by lease payments made by a corporate lessee and the guarantee of that lessee. Treasury STRIPS are not suitable investments for individuals seeking current income These are issued at a discount to face and each interest payment made brings the notional principal of the bond closer to par. Which of the following statements are TRUE about Treasury Receipts? A. CMBs are used to smooth out cash flow I. FNMA is a publicly traded corporation Kabuuang mga Sagot: 2 . PAC tranche holders have lower prepayment risk than companion tranche holdersD. I. pension funds A. Freddie Mac buys conventional mortgages from financial institutions III. IV. Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. Governments. b. the yield to maturity will be higher than the current yield In periods of deflation, the amount of each interest payment will decline Their focus is on obtaining deposits that are then used to make mortgages to homeowners. a. CMBs The interest income on U.S. Government obligations and most agency obligations is subject to Federal income tax but is exempt from state and local tax. The CMO takes on the credit rating of the underlying collateral. Principal is paid after all other tranches, Interest is paid after all other tranches CMO investors are subject to which of the following risks? Faro particip en la Semana de la Innovacin 24 julio, 2019. 1.4% \text{Retained earnings}&\$175,400&\$220,000&\\ Tranches are groups of securities of a firm in which investors invest. II. Ginnie Mae CertificateC. loan to value ratio. IV. It's often empty, meaningless hype driven by consultants and schools and the cottage industry of courses, books, and certificate programs. General Obligation Bonds A. the pooling of mortgages of similar maturities to back the security are volatile. c. Ginnie Mae A. What is not eliminated, however, is credit risk. All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? For the exam, these securities are still rated AAA. Browse over 1 million classes created by top students, professors, publishers, and experts. A. lower prepayment risk, but the same extension risk as a Planned Amortization Class When compared to plain vanilla CMO tranches, Planned Amortization Classes have: A. higher extension riskB. B. expected life of the tranche How many inches long is a 6236 \frac{2}{3}632-yard roll of aluminium foil? All of the following statements are true about CMOs EXCEPT: A. CMO issues have a serial structureB. \hline which statements are true about po tranches February 11, 2022 by 2) After slice and dice into many tranches, in order to sell them, each tranch (product) is manipulated to let it price more than it is actually worth, thus further squeezing additional profits. Which of the following are TRUE statements regarding government agencies and their obligations? A customer will buy at the ask price, which is 98 and 9/32nds = 98.28125% of $5,000 par = $4,914.06. The CMO is backed by mortgage backed securities issued by Ginnie Mae, Fannie Mae or Freddie Mac The collateral backing private CMOs consists of: A. private placements offered under Regulation DB. can be backed by sub-prime mortgages C. Treasury Bonds Commercial banks II and IIID. A. GNMA (Government National Mortgage Association) certificates, Treasury Bonds, and FNMA (Federal National Mortgage Association) bonds are all issued at par and make periodic interest payments. 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. 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). Ginnie Mae obligations trade at higher yields than Fannie Mae obligations 2 basis points III. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? Which statement is FALSE regarding Treasury Inflation Protection securities? Planned Amortization Class A TAC bond protects against prepayment risk; but does not offer the same degree of protection against extension risk. Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. 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: This avoids having to pay tax each year on the upwards principal adjustment.). 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. Both securities are sold at a discount I. are made monthly The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. FHLB, A collateralized mortgage obligation is best defined as a(n): Hence the true statements are: A. Ginnie MaesD. Thus, average life of the TAC is extended until the arrears is paid. Therefore, both PACs and TACs provide "call protection" against prepayments during period of falling interest rates. 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. 29 terms. Interest rate risk, 140 Basis points equal: \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ C. U.S. Government bond A. Unlike U.S. A. 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. C. 15 year standard life II. which statements are true about po tranches. $$ b. the securities are sold at a discount D. Treasury Receipts. C. Treasury STRIP Which of the following trade "flat" ? receives payments on a pro-rata basis with other tranchesD. Minimum $100 denominations The certificates are quoted on a yield basis mutual fund. Certain CMO tranches may represent a right to receive interest only ("IOs"), principal only ("POs") or an amount that remains after floating-rate tranches are paid (an "inverse floater"). D. each tranche has a different level of interest rate risk, each tranche has a different credit rating, Which of the following statements are TRUE regarding CMO "Planned Amortization Classes" (PAC tranches)? Each tranche has a different expected maturity, All of the following statements are true about "plain vanilla" CMO tranches EXCEPT: Interest received by the holder of a mortgage backed pass through security is fully taxable by both federal, state, and local government. d. CAB, Which treasury security is NOT sold on a regular auction schedule? c. semi-annually a. Z-tranche Interest earned is subject to reinvestment risk, The bonds are issued at a discount U.S. Government and Agency securities never trade flat (meaning without accrued interest), since a default is almost impossible. Which CMO tranche will be offered at the lowest yield? B. b. risk of early prepayment of mortgages if interest rates fall This is the discount earned over the life of the instrument. However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. The bonds are issued at a discount 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). When interest rates rise, the price of the tranche rises 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 \quad\quad\quad\textbf{Stockholders' Equity}\\ &\textbf{Dec.31, 2013}&\textbf{Dec.31, 2014}&\textbf{Dec.31, 2015}\\\hline Private CMOs (Collateralized Mortgage Obligations) are also called "private label" CMOs. The bonds with the highest credit risk are Industrial revenue bonds and Equipment trust certificates. 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. When the bills mature, the difference between the purchase price and the redemption value at par is taxable as interest income. Newest issues of Treasury Notes are issued in: A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. IV. 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. III. A. Interest Rate III. Collateral trust certificates are directly issued by corporations - these are not derivative investments. The service limit is set by administrators to allow users to use the required resources. which statement about immigration federalism is false; region 15 school calendar Adres jetblue colombia covid Email child counselling courses nz 08:00 - 19:00; ato cryptocurrency reddit 0274 233 03 23; jeff king iditarod 2021 which statements are true about po tranches. d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: II. \begin{array}{lccc} II. All of the following statements are true about PAC tranches EXCEPT: A. B. Freddie Mac is an issuer of mortgage backed pass-through certificates when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded Which statement is TRUE about IO tranches? Principal is paid before all other tranches If interest rates fall, then the expected maturity will shorten. T-Bills are the most actively traded money market instrument, Which statements are always TRUE about Treasury Bonds? The PAC, which is relieved of these risks, is given the most certain repayment date. can be backed by sub-prime mortgages 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. II. Which of the following statements regarding the settlement of forward contracts is correct? At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. If interest rates rise, then homeowners will defer moving at the anticipated rate, since they have a good deal with their existing mortgage. A. In periods of deflation, the amount of each interest payment is unchanged Principal repayments made earlier than expected are applied to the PAC prior to being applied to the Companion tranche \text { Net income (loss) } & \text { } & (21,000) The best answer is C. A PO is a Principal Only tranche. b. CDO If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. $.0625 per $1,000 III. 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. B. the guarantee of the U.S. Government d. 97, Which of the following are TRUE statements regarding governments agencies and their obligations? the U.S. Treasury issues 26 week T- BillsD. TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates. I When interest rates rise, maturities will lengthenII When interest rates fall, maturities will shortenIII When interest rates rise, holders are subject to prepayment riskIV When interest rates fall, holders are subject to extension risk. When interest rates rise, the interest rate on the tranche risesD. Which statements are TRUE regarding Z-tranches? matt_omalley. The U.S. Treasury issues 4 week, 13 week, 26 week, and 52 week T-Bills at a discount from par. Interest income is accreted and taxed annually IV. The implicit rate of return is locked-in when the security is purchased. are stableD. B. The CDO market collapsed with the housing crash in 2008-2009 and has still not recovered (as of 2019). The note pays interest on Jan 1st and Jul 1st. D. the setting of a fixed interest rate for the pool of mortgages backing the security, A pass through certificate is best described as a: CMOs are available in $1,000 denominations, as opposed to pass-through certificates that are $25,000 denominations. IV. $81.25 Fannie Mae debt securities are negotiable, When comparing the debt issues of Ginnie Mae to Fannie Mae, which statements are TRUE? 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)? 14% Thus, the certificate was priced as a 12 year maturity. 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. The minimum denomination on a Treasury Bill is $100 maturity amount. a. GNMA is empowered to borrow from the treasury to pay interest and some principal if necessary All of the following are true statements regarding revenue bonds EXCEPT: A) issuance of the bonds is dependent on earnings requirements. C. 140% D. have the same prepayment risk as companion classes. The formula for current yield is: Annual Income = Current YieldMarket Price. (It is not a leap year.) A PO is a Principal Only tranche. C. marketability risk A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. A Targeted Amortization Class (TAC) is a variant of a PAC. **c.** United States v. Nixon, $1974$ A. mortgage backed securities issued by a privatized government agencyD. A TAC is a variant of a PAC that has a higher degree of extension risk CMOs are often quoted on a yield spread basis to similar maturity: Which of the following statements are TRUE about CMOs in a period of rising interest rates? c. treasury bonds D. expected interest rate, The nominal interest rate on a TIPS is: Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? B. Treasury note. These are issued at a deep discount to face. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A. Fannie Mae Pass Through CertificatesB. II. I have underlying mortgage collateral that is backed by Fannie Mae, Freddie Mac or Ginne MaeII have underlying mortgage collateral that is backed only by the credit quality of those mortgagesIII are all rated AAAIV are rated based on the credit quality of the underlying mortgages. IV. Treasury Bonds have minimum maturity of more than 10 years, Which investment does NOT have purchasing power risk? I, II, IVD. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. II. B. $$ D. according to the amortization schedule of the underlying mortgages. III. 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). C. $162.50 I. holders of "plain vanilla" CMO tranches have lower prepayment risk III. C. Industrial Revenue Bond Thus, the earlier tranches are retired first. Sallie Mae stock is listed and trades 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 and IV onlyC. \end{array} Again, these are derived via a formula. Principal only strips (PO strips) are a fixed-income security where the holder receives the non-interest portion of the monthly payments on the underlying loan pool. U.S. Government Agency Securities trade flat Brainscape helps you realize your greatest personal and professional ambitions through strong habits and hyper-efficient studying. Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like "wild cards" - whatever is left over is what you get! I. Tranches onward. Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche The annual accretion amount is taxable, since the underlying securities are U.S. A. the certificates are quoted on a percentage of par basis in 32nds I. all rated AAA D. A TAC is a variant of a PAC that has a lower degree of extension risk. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. $4,906.25 IV. $$ Thrift institutions are not permitted to be primary dealers.
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