b. Reading 48 - Practice Problems (CFA Curriculum) Flashcards - Chegg Freddie MacsC. Which statement is TRUE about IO tranches? Browse over 1 million classes created by top students, professors, publishers, and experts. Thus, the expected mortgage repayment flows from the underlying pass-through certificates slow down, and the expected maturity of the CMO tranches will lengthen. Interest income is accreted and taxed annually All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? T-Notes are sold by negotiated offering At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. CMO issues are rated AAAC. U.S. Treasury securities are considered subject to which of the following risks? CMOs receive the same credit rating (AAA or AA) as the underlying mortgage backed pass-through certificates held in trust. 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. Interest earned is subject to reinvestment risk The bonds are issued at a discount Interest income is accreted and taxed annually If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. Fully depreciated equipment costing $50,000 is discarded. $100B. 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. Which of the following statements are TRUE regarding CMOs? These are issued at a discount to face and each interest payment made brings the "notional principal" of the bond closer to par. \begin{array}{c} However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. I, II, IIIC. 1.4% $25 per $1,000. 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. D. Companion tranche. PACs protect against extension risk, by shifting this risk to an associated Companion tranche. Collateral trust certificates are directly issued by corporations - these are not derivative investments. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds A. Furthermore, as interest rates drop, the value of the fixed income stream received from those mortgages increases, so the market value of the security will increase. American depositary receiptC. Treasury Bonds C. Treasury Strips C. Credit risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds II. which statements are true about po tranches When interest rates rise, the price of the tranche rises the same level of extension riskD. A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. c. certificates are issued in minimum units of $25,000 B. the certificates are available in $1,000 minimum denominations GNMA is owned by the U.S. Government 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). A Z-tranch is a zero tranche that receives no payments, either interest or principal, until all other tranches before it are paid off. All of the following would be considered examples of derivative products EXCEPT: The portfolio is assembled by a broker-dealer, who sells receipts representing ownership of the interest. 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)? CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? FRB principal amount is adjusted to $1,050 II. Macaulay durationD. II. In periods of deflation, the amount of each interest payment will decline Which two statements are true about service limits and usage? II. But we've saved 90% of the people and identified most of the alien overlords and their centers. Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? REG - Riverstone Energy Ld - Annual Report and Financial Statements 2022 If prepayment rates rise, the PAC tranche will receive its sinking fund payment after its companion tranchesC. II. collateralized mortgage obligationD. are made semi-annually Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. Let's be real with ourselves. Which statements are TRUE about PO tranches? D. A TAC is a variant of a PAC that has a lower degree of extension risk. Interest Rate The smallest denomination available for Treasury Bills is: A. CMOs are often quoted on a yield spread basis to similar maturity: Planned Amortization ClassB. Test 1z0-1085-20-1 - DAYPO D. call risk. IV. Treasury STRIPS which statements are true about po tranches are volatile. money market funds "Plain vanilla" CMOs are 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. The securities mature at par, Which of the following are TRUE statements regarding both Treasury Bills and Treasury Receipts? I, II, IVC. If the maturity shortens, then for a given fall in interest rates, the price will rise slower. A customer buys 5M of the notes. Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Financial Management, Concise Edition, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. The CMO purchaser buys a specific tranche. Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded D. Zero Tranche. The PAC class is given a more certain maturity date than the Companion class II. IV. III. III. I. all rated AAA When compared to plain vanilla CMO tranches, Planned Amortization Classes have: GNMA securities are guaranteed by the U.S. Government. Thus, the earlier tranches are retired first. All of the following statements are true about PAC tranches EXCEPT: A. 8/32nds = 1/4th = .25% of $1,000 par = $2.50. The PAC class has a lower level of prepayment risk than the Companion class IV. Treasury bill Both securities are sold at a discount which statements are true about po tranches Thus, the certificate was priced as a 12 year maturity. which statements are true about po tranches I CMO issues have a serial structureII CMO issues are rated AAAIII CMO issues are more accessible to individual investors than regular pass-through certificatesIV CMO issues have a lower level of market risk than regular pass-through certificates, A. I and II onlyB. represent a payment of both interest and principal Payments to holders of Ginnie Mae pass-through certificates: A. C. Treasury Bonds Treasury Receipts are a zero-coupon obligations that must be accreted annually for tax purposes. 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. The securities are purchased at a discount Ginnie Mae Pass-Through certificates are U.S. Government guaranteed, so trades settle in Fed Funds. which statements are true about po tranches 16 .. We are not the heroes of the narrative. REITs are common stock companies that make direct investments in real estate. GNMA pass through certificates are not guaranteed by the U.S. Government, GNMA is owned by the U.S. Government The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. III. quarterlyC. IV. c. risks of default if homeowners do not make their mortgage payments I. Fannie Mae is a publicly traded company Treasury Receipts, All of the following are true statements about U.S. Government Agency securities EXCEPT: A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. Securities and Exchange Commission Treasury bill prices are rising, interest rates are falling Fannie Mae debt securities are negotiable, When comparing the debt issues of Ginnie Mae to Fannie Mae, which statements are TRUE? Treasury Bond 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. Federal income tax onlyB. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. Contract settlement by cash has different economic effects from those of a settlement by delivery. c. semi-annually Federal, State and Local income tax. II. A Z-tranch is a Zero tranche. The CMO is rated dependent on the credit quality of the mortgages underlying mortgage backed pass through securities held in trust \end{array} 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. Interest earned is subject to reinvestment risk, The bonds are issued at a discount Sallie Mae is wholly owned by the U.S. Government 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 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). \textbf{For the Year Ended December 31, 2014 and 2015}\\ Which security has, as its return, the pure interest rate? Prepayment risk If interest rates drop, the market value of CMO tranches will decrease Although controversial and the subject of recent lawsuits (e.g., Satchell et al. A. B. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. This makes CMOs more accessible to small investors. PAC tranches reduce prepayment risk to holders of that tranche Treasury Bonds II. Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche. ", An investor in 30 year Treasury Bonds would be most concerned with: 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. 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. \quad\quad\quad\textbf{Assets}\\ SAFe APM Certification will make you expert in SAFe Agile Product Manager, through which you can converts into leads . The interest earned from which of the following is exempt from state and local tax? D. CMBs are direct obligations of the U.S. government. 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. T-Notes are issued in bearer form. II. A. II. 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. 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 Federal Farm Credit Funding Corporation Note. 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. C. Treasury STRIP Thus, the prepayment rate for CMO holders will increase. serial structures An annual upward adjustment due to inflation is taxable in that year; an annual downward adjustment due to deflation is tax deductible in that year.C. They do have purchasing power risk (the risk of inflation eroding real returns), but this is only an issue for long-term maturities. Electromagntisme PCSI MPSI - | Classe | prpa PCSI MPSI PTSI B. Sallie Mae stock does not trade, Sallie Mae is a privatized agency Which of the following securities has the lowest level of credit risk? 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 Treasury "STRIPS" and Treasury Receipts are bonds which have been stripped of coupons - essentially they are zero coupon Treasury obligations. 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. b. increase prepayment risk to holders of that tranche Which statement is TRUE about floating rate tranches? Which statements are TRUE regarding Z-tranches? I. Treasury bond Which statements are TRUE regarding Treasury debt instruments? A floating rate CMO tranche is MOST similar to a: The best answer is B. If interest rates rise, then the expected maturity will shorten B. When interest rates rise, the price of the tranche fallsB. \hline C. Plain Vanilla Tranche 2000-5000-full-agm-egm-20230227 | PDF | Electronic Voting | Stocks Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds Midterm 3 Flashcards | Quizlet B. I and IV . C. each tranche has a different credit rating This is extension risk - the risk that the CMO tranche will have a longer than expected life, during which a lower than market rate of return is earned. FHLMC The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pool's: PAC tranche holders have lower prepayment risk than companion tranche holdersD. 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. I CMOs are backed by agency pass-through securities held in trustII CMOs have investment grade credit ratingsIII CMOs give the holder a limited form of call protection that is not present in regular pass-through obligationsIV CMOs are issued by government agencies. C. semi-annually IV. Treasury Bills are not subject to reinvestment risk because they are essentially short term "zero-coupon" obligations. REG - Riverstone Energy Ld - Annual Report and Financial Statements 2022. C. Treasury STRIP Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall Thus, there is no reinvestment risk, since semi-annual interest payments are not received. Question: Which statement is true about FTP? When interest rates rise, the price of the tranche rises b. treasury bills Which of the following statements are TRUE when comparing CMO PAC tranches to Companion tranches? III. D. Treasury Stock, Which of the following are TRUE statements about Treasury Bills? Thus, the certificate was priced as a 12 year maturity. D. derivative product. I. Treasury Bills are quoted in 32nds 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: When interest rates rise, the interest rate on the tranche rises. 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. 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. MASTERY EXAM 1 Flashcards | Quizlet Thus, the earlier tranches are retired first. \text{Unrealized gain (loss) on available-for-sale investments}&&&(16,400)\\ The service limit is a quota set on a resource. 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. Governments. For the exam, these securities are still rated AAA. b. companion tranche Thus, the rate of principal repayments varies, depending on market interest rate movements. Credit Rating. II and IV. 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. 15 year standard lifeD. B. 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. Tranches onward Flashcards | Quizlet A derivative product is one whose value is derived via a formula from an underlying investment. 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. storm in the night central message Facebook-f object to class cast java Instagram. Ginnie Mae bonds are traded Over the Counter, Ginnie Mae is a U.S. Government Agency "5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). CDOs - Collateralized Debt Obligations - are structured products that invest in CMO tranches (and they can also invest in other debt obligations that provide cash flows). T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve which statements are true about po tranches B. the guarantee of the U.S. Government D. When interest rates rise, the interest rate on the tranche rises. T-bills are issued in bearer form in the United States C. in varying dollar amounts every month 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. I, II, III, IV. A Targeted Amortization Class (TAC) is a variant of a PAC. Treasury Bills 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). (It is not a leap year.) What is the current yield, disregarding commissions? Government National Mortgage Association Pass Through Certificates. III. A. Treasury Bills are quoted on a yield basis. Treasury Notes Treasury Notes A. Which of the following statements are TRUE about CMOs in a period of rising interest rates? II. A. PAC tranche Conversely, when market interest rates fall, the rate of prepayments rises (prepayment risk) and the maturity shortens. B. A. D. yearly, Wide swings in market interest rates would affect which of the following for holders of collateralized mortgage obligations? CMBs are sold at a regular weekly auction Newer CMOs divide the tranches into PAC tranches and Companion tranches. CMOs take the payment flow from the underlying pass-through certificates and allocate them to so-called tranches. A CMO backed by 30 year mortgages might be divided into 15-30 separate tranches. marketability risk on the same day as trade date Collateralized mortgage obligations may be backed by all of the following securities EXCEPT: D. In periods of inflation, the principal amount received at maturity is more than par. Science, 28.10.2019 21:29, nicole8678. ), and Freddie Mac (Federal Home Loan Mortgage Corp.) all issue pass-throughs. If interest rates rise, then the expected maturity will lengthen Accrued interest on the certificates is computed on a 30 day month / 360 day year basis, All of the following statements are true regarding GNMA "Pass Through" Certificates EXCEPT: I. through a National Securities Clearing Corporation which statements are true about po tranches. treasury bonds Interest payments are still made pro-rata to all tranches (like plain vanilla CMOs), 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. When this interest is received by the certificate holder, both the federal and state government want to recapture this interest income and tax it. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. C. When interest rates rise, homeowners do not refinance their mortgages, and the prepayment rate will be lower than expected. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. 94 C. 140% This is a tranche that only receives the principal payments from an underlying mortgage, and it is created with a corresponding IO (Interest Only) tranch that only receives the interest payments from that mortgage. $81.25 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. III. 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? Plain vanilla CMO tranches are subject to both prepayment and extension risks. a. IV. $$ D. $5,000, A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. 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. A. each tranche has a different maturity Approximately how much will the customer pay, disregarding commissions and accrued interest? IV. Because of the sequencing of principal repayments from the underlying mortgages, the holder has a more definite maturity date on the issue, as compared to actually buying a mortgage backed pass-through certificate. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations which statements are true about po tranchesdead island crossplay xbox pcdead island crossplay xbox pc C. In periods of inflation, the principal amount received at maturity will be par I when interest rates fallII when interest rates riseIII so they can refinance at lower ratesIV so they can refinance at higher rates. CMO Targeted Amortization Classes (TACs) have: