A. Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. This is the discount earned over the life of the instrument. Which of the following statements are TRUE regarding GNMA "Pass Through" Certificates? \end{array} The preparation of the audited annual financial statements of the Group was supervised by Mr M Bosman, CA(SA). on the business day after trade date, through the Federal Reserve System The Companion, which absorbs these risks first, has the least certain repayment date. B. Thus, when interest rates fall, prepayment risk is increased. III. A. lower prepayment risk, but the same extension risk as a Planned Amortization Class The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. Therefore, an interest rates move up, the interest rate paid on the tranche steps up as well; and when interest rates drop, the interest rate paid on the tranche steps down down as well. A. average life of the tranche Which statements are TRUE about private CMOs? Treasury Receipts represent an undivided interest in a portfolio of U.S. Government securities held by a trustee. B. expected life of the tranche If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. It gets no payments until all prior tranches are retired. C. discount bond II and III onlyC. 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. b. Each tranche of a CMO, in effect, represents a differing expected maturity, hence each tranche has a different level of market risk. He wants to receive payments over a minimum 10-year investment time horizon. C. Treasury Bonds Bond classes can be categorised as senior tranches or subordinated (junior) tranches. a. B. higher prepayment risk, but the same extension risk as a Planned Amortization Class CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: IV. All of the tranches are issued on the same date; but the maturities extend over a sequence of years. IV. The annual accretion amount is subject to Federal income tax each year, as the underlying securities are U.S. c. the interest coupons are sold off separately from the principal portion of the obligation GNMA pass through certificates are guaranteed by the U.S. Government Treasury 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. C. certificates trade "and interest" Do bonds have tranches? - Vxpch.bluejeanblues.net A. **d.** Nebraska Press Association v. Stuart, $1976$ 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 spread between the bid and ask is 2/32nds. 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? Beitrags-Autor: Beitrag verffentlicht: 22. III. reduce prepayment risk to holders of that tranche Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? d. TAC tranche, A structured product that invests in tranches of private label subprime mortgages is a: which statements are true about po tranches - faro.com.pe 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. B. B. 1 mortgage backed pass through certificate at par quarterlyC. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. Only mortgage backed pass-through certificates are used as the backing for CMOs - and Ginnie Mae (Government National Mortgage Assn. The price movements of IOs are counterintuitive! After reviewing the website, explain how not-for-profit organizations are rated. There is no such thing as an AAA+ rating; AAA is the highest rating available. Tranches onward Flashcards | Quizlet d. TAC tranche, Which statement is FALSE about CMBs? IV. 2/32nds = .0625% of $1,000 par = $.625. Ginnie Mae stock is traded on the New York Stock Exchange Thus, the certificate was priced as a 12 year maturity. d. annually, Which of the following designates "primary" US government securities dealers? C. U.S. Government Agency Securities trade flat This makes CMOs more accessible to small investors. purchasing power risk Again, these are derived via a formula. If prepayments increase, they are made to the Companion class first. B. \textbf{For the Year Ended December 31, 2014 and 2015}\\ Treasury bill prices are falling Principal is paid before all other tranches When interest rates rise, prepayment rates rise 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. Federal Farm Credit Funding Corporation BondsD. A customer has heard about the explosive growth in China and wants to make . A. discount rate Government agency securities are quoted in 32nds, similar to U.S. Government securities. U.S. Government and agency bond trades settle in Federal Funds, which are good funds the business day of the funds transfer (next business day for regular way settlement of government securities). purchasing power risk When interest rates rise, the price of the tranche falls 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. 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. A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. FNMA pass through certificates are guaranteed by the U.S. Government A TAC is a variant of a PAC that has a higher degree of prepayment risk The dollar price of a $1,000 par bond is: A $950.24 B $952.40 C $957.50 D $1,000.00. If this distribution well models the applicant pool, a randomly chosen applicant would have what probability of scoring in the following regions? 2 basis points Each tranche has a different level of credit risk principal amount remains at $1,000. Which statements are TRUE regarding treasury STRIPS? I. Ginnie Mae issues are directly backed by the full faith and credit of the U.S. Government Governments. 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. when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall U.S. Government and Agency securities never trade flat (meaning without accrued interest), since a default is almost impossible. 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. IV. B. II. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations 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. Which statements are TRUE regarding CMOs? Government agency securities have an indirect backing (or implicit) by the U.S. Government. Treasury Bills are quoted on a yield basis. Thus, the interest rate on a short-term T-Bill is the pure interest rate - the same thing as the risk-free rate of return. A. interest accrues on an actual day month; actual day year basis They are sold in $100 minimums at a discount to par value, just like Treasury Bills. The principal portion of a fixed rate mortgage makes smaller payments in the early years, and larger payments in the later years. MASTERY EXAM 1 Flashcards | Quizlet c. CMOs are subject to a higher level of prepayment risk than a pass through certificate CMBs are Cash Management Bills. The logic behind this tax treatment is that the mortgage interest paid by the homeowners was fully deductible from both federal, state, and local taxes. Both securities are issued by the U.S. Government When the bills mature, the difference between the purchase price and the redemption value at par is taxable as interest income. Mortgage backed pass through certificates are sold in minimum denominations of $25,000 (instead of the typical $1,000 for other bonds and $100 for Treasury issues). If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. $4,914.06 C. each tranche has a different credit rating Fannie Maes. FHLMC Mortgage backed pass-through certificate Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: A. The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. Because of this payment structure, it is most similar to a long-term bond, which pays principal at the end of its life. $10,000D. b. Sallie Mae If the maturity shortens, then for a given fall in interest rates, the price will rise slower. I Each tranche has a different level of market riskII Each tranche has the same level of market riskIII Each tranche has a different yieldIV Each tranche has the same yield. The securities are purchased at a discount This "prepayment speed assumption" is used to "guesstimate" the expected life of a mortgage backed pass-through certificate. 15 year standard lifeD. Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). B. Freddie Mac is an issuer of mortgage backed pass-through certificates I. GNMA is a publicly traded corporation III. 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). c. Ginnie Mae In periods of deflation, the principal amount received at maturity is unchanged at par, In periods of deflation, the amount of each interest payment will decline IV. The interest coupons are sold off separately from the principal portion of the obligation d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: DEBT: US GOV Flashcards | Quizlet Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. 14% CMOs are packaged and issued by broker-dealers. 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. I, II, IVC. Again, these are derived via a formula. A. the certificates are quoted on a percentage of par basis in 32nds B. 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.
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