This "prepayment speed assumption" is used to "guesstimate" the expected life of a mortgage backed pass-through certificate. Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? TACs are like a "one-sided" PAC - they protect against prepayment risk, but not against extension risk. Interest is paid after all other tranches c. PAC tranche Ginnie Mae issues are not directly backed by the full faith and credit of the U.S. Government A Targeted Amortization Class (TAC) is like a PAC, but is only buffered for prepayment risk by the Companion; it is not buffered for extension risk. A. the pooling of mortgages of similar maturities to back the security IV. The other agencies are only implicitly backed. The holder is not subject to reinvestment risk, Treasury STRIPS are not suitable investments for individuals seeking current income There is usually a cap on how high the rate can go and a floor on how low the rate can drop. If interest rates rise, then the expected maturity of a CMO tranche will lengthen, due to a lower prepayment rate than expected. Treasury STRIPS I. when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall 1. 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. All of the following statements are true regarding collateralized mortgage obligations EXCEPT: A. CMOs are issued by local government agenciesB. \text{Unrealized gain (loss) on available-for-sale investments}&&&(16,400)\\ 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. Mortgage backed pass-through certificateC. C. certificates are issued in minimum units of $25,000 A companion tranche is a class, or type, of tranche, which is a portion of a debt or security. 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. Note that this is different than the typical minimum $1,000 par amount for other debt issues. Do not confuse this with the "average life" of the mortgages in the pool that backs the CMO. $$ There is usually a cap on how high the rate can go and a floor on how low the rate can drop. Why? I, II, III, IV. 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 I and IV Their focus is on obtaining deposits that are then used to make mortgages to homeowners. IV. 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 d. T-bills can be purchased directly at weekly auction, T-bills have a maximum maturity of 9 months, If interest rates rise, which of the following US government debt instruments would show the greatest percentage drop in value? Freddie Mac debt issues are directly guaranteed by the U.S. Government The note pays interest on Jan 1 and Jul 1. receives payments on a pro-rata basis with other tranchesD. 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: B. the certificates are available in $1,000 minimum denominations C. security which is backed by real property and/or a lien on real estate The preparation of the audited annual financial statements of the Group was supervised by Mr M Bosman, CA(SA). b. they are "packaged" by broker-dealers Thus, the prepayment rate for CMO holders will increase. 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). Brainscape helps you realize your greatest personal and professional ambitions through strong habits and hyper-efficient studying. (Attachments: # 1 Civil Cover Sheet) (Khoury, Cholla) (Entered: 06/30/2021). IV. I Holders of Companion CMO tranches have lower prepayment riskII Holders of Companion CMO tranches have higher prepayment riskIII Holders of plain vanilla CMO tranches have lower prepayment riskIV Holders of plain vanilla CMO tranches have higher prepayment risk. Plain vanillaB. GNMA pass through certificates are guaranteed by the U.S. Government a. weekly T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction Targeted Amortization Class which statements are true about po tranches. 14% 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. CMO holders receive monthly payments derived from the underlying mortgage backed pass-through certificates. b. the securities are sold at a discount \end{array} Which of the following statements are TRUE about CMOs in a period of rising interest rates? CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. 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 $$ A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. C. In periods of inflation, the principal amount received at maturity will be par Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? Besides, these portions of bonds or mortgages have varying amounts of risk and maturity. Federal Home Loan Bank Bonds. II. I. If interest rates rise, then the expected maturity will lengthen If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. 8/32nds = 1/4th = .25% of $1,000 par = $2.50. C. each tranche has a different credit rating CMO issues have the same market risk as regular pass-through certificates. These trades are settled through GSCC - the Government Securities Clearing Corporation. no extension risk. d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: IV. Yield quotes for collateralized mortgage obligations are based upon: A. average life of the trancheB. vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. When this interest is received by the certificate holder, both the federal and state government want to recapture this interest income and tax it. II. I. holders of PAC CMO tranches have lower prepayment risk III. 95 Which statement is TRUE about PO tranches? IV. There were no dividends. B. on the same day as trade date 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. B. II. This avoids having to pay tax each year on the upwards principal adjustment.). When the bills mature, the difference between the purchase price and the redemption value at par is taxable as interest income. If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. A. Collateralized mortgage obligation tranches that are available to the public are generally rated: CMO tranches are generally AAA rated (or have an implied AAA rating because the tranches are backed by GNMA, FNMA or Freddie Mac pass-through certificates). B. I and IV . CMOs are backed by agency pass-through securities held in trustC. 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. D. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds. IV. 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. \textbf{For the Year Ended December 31, 2013, 2014 and 2015}\\ When interest rates rise, the price of the tranche risesC. General Obligation Bonds C. certificates trade "and interest" Treasury Receipts, Treasury Bills The CMO purchaser buys a specific tranche. Securities and Exchange Commission Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? Which statement is FALSE when comparing Agency CMOs to Private Label CMOs? c. PAC tranche All of the following statements are true regarding this trade of T-notes EXCEPT: $10,000D. Federal Farm Credit Funding Corporation Note. I. b. risk of early prepayment of mortgages if interest rates fall Ginnie MaesD. A customer buys 1 note at the ask price. 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. B. in constant dollar amounts every month mortgage backed securities issued by a privatized government agencyD. I all rated AAAII rated based on the credit quality of the underlying mortgagesIII can be backed by sub-prime mortgagesIV cannot be backed by sub-prime mortgages. It acts like a long-term zero coupon bond. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs Users should NOT be allowed to delete review records after job application records have been approved. $2.50 per $1,000D. Juni 2022; Beitrags-Kategorie: what was the result of the election of 1856 Beitrags-Kommentare: organic smart bites microdose gummies organic smart bites microdose gummies D. no prepayment risk. Fannie Mae debt securities are negotiable The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. Which of the following statements are TRUE regarding CMOs? III. However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. B. C. series structures \hline \text { Operating income } & \text { } & \text { } \\ Commercial banks CMOs are issued by government agencies, CMOs are backed by agency pass through securities held in trust GNMA pass through certificates are not guaranteed by the U.S. Government, GNMA is owned by the U.S. Government CMOs have investment grade credit ratings Credit Rating. Which CMO tranche will be offered at the highest yield? Equipment Trust Certificate A. average life of the tranche State income tax onlyC. I. Ginnie Mae issues are directly backed by the full faith and credit of the U.S. Government The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. A. the certificates are quoted on a percentage of par basis in 32nds The note pays interest on Jan 1 and Jul 1. 2 basis points C. the same level of prepayment risk c. Ginnie Mae The Federal Reserve allows commercial banks (such as Citibank and J.P. Morgan Chase); domestic broker-dealers (such as Goldman Sachs); and foreign broker-dealers (such as Daiwa Securities and Nomura Securities); and foreign banks such as Royal Bank of Scotland; to be primary dealers. 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. Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. Dealers typically quote agency securities, including Ginnie Maes, on a basis point differential to equivalent maturing U.S. They are the shortest-term U.S. government security, often with maturities as short as 5 days. A. collateral trust certificateB. Treasury Bonds have minimum maturity of more than 10 years, Treasury Bonds are traded in 32nds B. Interest Rate I. PAC tranches reduce prepayment risk to holders of that tranche So if you're in a war, and the war is "Invasion of the Body Snatchers" where you don't know who is compromised (and was why that movie was made), then people die in a war. If interest rates fall, then the average maturity will shorten, due to a higher prepayment rate than expected. The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. Unlike U.S. taxable in that year as interest income receivedC. A customer who wishes to buy 1 Treasury Bill will pay: The best answer is A. They are used to create tranches with different risk/return characteristics - so a CDO will have higher risk tranches holding lower quality collateral and lower risk tranches holding higher quality collateral. 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.