"5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). Unlike U.S. C. the trade will settle in Fed Funds D. Freddie Mac debt issues are directly guaranteed by the U.S. Government. IV. C. $4,920.00 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. III. \begin{array}{lccc} All of the following statements are true about Treasury Bills EXCEPT: A. the U.S. Treasury issues 1 week T- BillsB. D. $4,945.00. individuals seeking current income I. purchasing power risk Tranches onward. GNMA pass through certificates are not guaranteed by the U.S. Government, GNMA is owned by the U.S. Government D. derivative product. 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. All of the following statements are true about CMOs EXCEPT: A. CMO issues have a serial structureB. I. Fannie Mae is a publicly traded company individuals seeking current income, Which of the following are issued with a fixed coupon rate? B. 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. Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. A. the pooling of mortgages of similar maturities to back the security Which statements are TRUE about PO tranches? IV. B. $35.00 GNMA is owned by the U.S. Government I Trades bypass the floor broker II Trades can be effected more efficiently and at lower cost III Orders can be accepted up to certain size limits IV Orders can be executed at faster speed I, II, III, and IV Domestic broker-dealers III. Thus, the earlier tranches are retired first. Thus, when interest rates fall, prepayment risk is increased. D. $5,000, A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. A. Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded 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. I. The best answer is C. CMBs are Cash Management Bills. Treasury STRIPS $$ IV. 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. In periods of inflation, the principal amount received at maturity will be par Treasury Bills are original issue discount obligations. \text{Available-for-sale investments, at cost}&\$90,000&\$86,000&\$102,000\\ These are also not a derivative product. a. A customer who wishes to buy 1 Treasury Bill will pay: Determine the missing lettered items. Therefore, as 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 as well. If the maturity shortens, then for a given fall in interest rates, the price will rise slower. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. 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. By . 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. Real Estate Investment TrustD. interest rates are rising Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. The principal portion of a fixed rate mortgage makes smaller payments in the early years, and larger payments in the later years. Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. Interest is paid after all other tranches On the other hand, if market interest rates rise, homeowners stay in their existing homes longer than expected and the rate of expected principal repayments slows, extending the maturity of the tranches. D. Series EE Bonds. 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. 15 year standard lifeD. 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. Treasury Bonds Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. Treasury NotesC. C. the same level of prepayment risk but a lower level of extension risk than a Planned Amortization Class Interest earned is subject to reinvestment risk The bonds are issued at a discount Interest income is accreted and taxed annually C. Credit risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds 1 mortgage backed pass through certificate at par **b. b. they are "packaged" by broker-dealers IV. When interest rates rise, the price of the tranche rises PACs protect against extension risk, by shifting this risk to an associated Companion tranche. Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like wild cards - whatever is left over is what you get! IV. taxable in that year as long term capital gainsD. III. Because interest will now be paid for a longer than expected period, the price rises. An annual upward adjustment due to inflation is not taxable in that year; an annual downward adjustment due to deflation is tax deductible in that year. d. TAC tranche, A structured product that invests in tranches of private label subprime mortgages is a: Treasury STRIPS are not suitable investments for individuals seeking current income II. The CMO is backed by mortgage backed securities created by a bank-issuer Because of this payment structure, it is most similar to a long-term bond, which pays principal at the end of its life. Human resource testing. 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. I. How much will the customer receive at each interest payment? They are the shortest-term U.S. government security, often with maturities as short as 5 days. When interest rates rise, the interest rate on the tranche rises. II. When compared to plain vanilla CMO tranches, Planned Amortization Classes have: Both securities are sold at a discount Riverstone Energy Announcement. III. IV. B. security which is backed by the full faith, credit, and taxing power of the U.S. Government b. I. pension funds Instead of being backed by mortgages guaranteed by Fannie, Freddie or Ginnie, they are backed by private label mortgages - meaning mortgages that do not qualify for sale to these agencies (either because the dollar amount of the mortgage is above their purchase limit or they do not meet Fannie, Freddie or Ginnies underwriting standards). 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. III. The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. c. predicted standardization amortization \begin{array}{c} Each tranche has a different yield CMBs are Cash Management Bills. The note pays interest on Jan 1st and Jul 1st. C. Industrial Revenue Bond C. security which is backed by real property and/or a lien on real estate b. Sallie Mae The securities are purchased at a discount $.625 per $1,000 A mortgage-backed security (MBS) that goes through this processseparating the interest and. Interest income is accreted and taxed annually Since interest is paid semi-annually, each payment will be for $81.25. C. When interest rates rise, the interest rate on the tranche falls treasury notes A collateralized mortgage obligation is best defined as a derivative product. A. A. FNMA is a publicly traded company If interest rates drop, homeowners will refinance their mortgages, increasing prepayment rates on CMOs The note pays interest on Jan 1 and Jul 1. IV. II. 89 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). 2 basis points B. \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ Targeted amortization class When interest rates rise, the price of the tranche risesC. C. 10 mortgage backed pass through certificates at par A. Freddie Mac buys conventional mortgages from financial institutions Because these T-Notes are trading at a premium, the yield to maturity will be lower than the current yield. The interest earned from which of the following is exempt from state and local tax? IV. d. Savings (EE) bonds, All of the following agencies provide financing for residential housing EXCEPT: Treasury Bonds are traded in 32nds These are funds payable at a registered clearing house, which are usually not good funds for three business days. 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. I, II, III, IV. . I. IV. I. CMOs are backed by agency pass through securities held in trust The PAC class has a lower level of prepayment risk than the Companion class Universal Containers has built a recruiting application with 2 custom objects, Job Applications and Reviews, that have a master-detail relationship. III. Collateral trust certificate. c. CMB c. Ginnie Mae CMO Targeted Amortization Classes (TACs) have: II. Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. I. Thus, the certificate was priced as a 12 year maturity. We are not the CEOs. 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. c. Office of the Comptroller of Currency This pool, with say an average life of 12 years, is "chopped-up" into many different tranches, each with a given "expected life." The implicit rate of return is locked-in when the security is purchased. III. T-Notes are sold by negotiated offering 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. 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. B. Treasury Bills d. taxable at maturity, taxable in that year as interest income received, Which CMO tranche is least susceptible to interest rate risk? One of the question asked in certification Exam is, Which statement is true about personas? 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. Which statements are TRUE about PO tranches? D. Treasury Receipts. 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). Interest rate risk, Extended maturity risk T-bills are issued at a discount, T-bills are registered in the owner's name in book entry form Freddie Mac debt issues are directly guaranteed by the U.S. Government Companion. Macaulay durationD. III. Extended maturity risk T-Notes are issued in book entry form with no physical certificates issued Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. IV. 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. Browse over 1 million classes created by top students, professors, publishers, and experts. III. The spread between the bid and ask is 2/32nds. Treasury bill interest payments are exempt from state and local tax IV. C. Municipal bonds When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), all of the following statements are true EXCEPT: A. He wants to receive payments over a minimum 10-year investment time horizon. The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations Charity Navigator (https://www.charitynavigator.org) is a website dedicated to providing information regarding not-for-profit charitable organizations. **a. 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. Annual interest on the bonds is 3.25% of $5,000 face amount equals $162.50. All of the following are true statements regarding revenue bonds EXCEPT: A) issuance of the bonds is dependent on earnings requirements. Collateralized mortgage obligations may be backed by all of the following securities EXCEPT: The primary risk associated with holding long term U.S. Government obligations is "purchasing power" risk. 1.4% 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). C. Treasury Bonds 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. Although controversial and the subject of recent lawsuits (e.g., Satchell et al. \textbf{Highland Industries Inc.}\\ What do you think is the most difficult The current yield of the Treasury Bond is: Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? B. Freddie Mac Pass Through Certificates when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall D. actual maturity of the underlying mortgages. General Obligation Bond actual maturity of the underlying mortgages. derivative product I. through a National Securities Clearing Corporation These are issued at a deep discount to face. B. lower prepayment risk Users should NOT be allowed to delete review records after job application records have been approved. D. have the same prepayment risk as companion classes. Which of the following statements are TRUE about CMOs?
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