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D. CMBs are direct obligations of the U.S. government. Thus, payments are received monthly. represent a payment of both interest and principal I. which statements are true about po tranches. actual maturity of the underlying mortgages. A. lower prepayment risk, but the same extension risk as a Planned Amortization Class If prepayments increase, they are made to the Companion class first. When interest rates rise, prepayment rates rise III. Federal Farm Credit Funding Corporation Note. III. PACs protect against extension risk, by shifting this risk to an associated Companion tranche. A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. Government agency securities are quoted in 32nds, similar to U.S. Government securities. In periods of deflation, the amount of each interest payment is unchanged II. 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. 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. II. T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction 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. Ginnie Mae issues are not directly backed by the full faith and credit of the U.S. Government Interest is paid semi-annually II. I. PAC tranches reduce prepayment risk to holders of that tranche Treasury Bond c. When interest rates rise, the interest rate on the tranche rises. III. \textbf{Selected Balance Sheet Items}\\ Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds \begin{array}{lcc} Companion Tranche Definition - Investopedia a. Interest income is accreted and taxed annually 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 Real Estate Investment Trusts Treasury Bills, The nominal interest rate on a TIPS approximates the: Sallie Mae stock is listed and trades I PACs are similar to TACs in that both provide call protection against increasing prepayment speedsII PACs differ from TACs in that TACs do not offer protection against a decrease in prepayment speedsIII PAC holders have a degree of protection against extension risk that is not provided to TAC holdersIV TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates, A. I onlyB. a. treasury bills C. Treasury STRIP IV. When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), all of the following statements are true EXCEPT: A. The spread is: A. B. Non- deliverable forwards and contracts for differences have distinct settlement procedures. Sallie MaesB. 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. Which of the following statements are TRUE regarding CMOs? 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. The smallest denomination available for Treasury Bills is: A. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. The interest income from direct issues of the U.S. Government and most agency obligations is subject to federal income tax but is exempt from state and local tax. d. have the same prepayment risk as companion classes, reduce prepayment risk to holders of that tranche, Which statements are TRUE when comparing PAC CMO tranches to "plain vanilla" CMO tranches? CMOs have a lower level of market risk (risk of price volatility due to movements in market interest rates) than do mortgage backed pass-through certificates. IV. Thus, the prepayment rate for CMO holders will increase. An IO is an Interest Only tranche. A. Treasury bill prices are falling b. monthly Local income tax onlyD. C. In periods of inflation, the principal amount received at maturity will be par A a. CMOs are available in $1,000 denominations "Which statements are TRUE about IO tranches? I When interest rates Treasury Receipts are a zero-coupon obligations that must be accreted annually for tax purposes. GNMA Pass-Through Certificates. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. 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. Interest earned is subject to reinvestment risk, The bonds are issued at a discount matt_omalley. A. credit risk 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. The note pays interest on Jan 1st and Jul 1st. The longer the maturity, the greater the price volatility of a negotiable debt instrument. Do not confuse this with the average life of the mortgages in the pool that backs the CMO. If the principal amount of a Treasury Inflation Protection Security is adjusted upwards due to inflation, the adjustment amount is: A. not taxableB. Planned Amortization ClassB. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. II. IV. 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. 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. 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. Yield quotes for collateralized mortgage obligations are based upon: A. average life of the trancheB. Principal is paid after all other tranches, Interest is paid after all other tranches IV. Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. 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. Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche. \quad\quad\quad\textbf{Assets}\\ D. no prepayment risk. Thus, the rate of principal repayments varies, depending on market interest rate movements. a. prepayment speed assumption $$ D. loan to value ratio. PAC tranche holders have lower prepayment risk than companion tranche holdersD. B. each tranche has a different yield Treasury NoteC. Equipment Trust Certificate 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. Tranches onward Flashcards | Quizlet REG - Riverstone Energy Ld - Annual Report and Financial Statements 2022 Which statement is TRUE about PO tranches? II. Not too shabby. Finally, each American Depositary Receipt represents a fixed number of foreign shares held in trust. T-Notes are issued in book entry form with no physical certificates issued If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? I when interest rates fallII when interest rates riseIII so they can refinance at lower ratesIV so they can refinance at higher rates. b. CMOs make payments to holders monthly 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. Non-callable funded debtC. Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? Each tranche has a different yield 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)? which statements are true about po tranches. This is a serial structure. a. CMBs FRB . C. Planned amortization class I, II, IVD. D. Treasury Bond. IV. T-Bills are the most actively traded money market instrument, Which statements are always TRUE about Treasury Bonds? Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? PACs protect against prepayment risk, by shifting this risk to an associated Companion tranche. The CMO is backed by mortgage backed securities issued by Ginnie Mae, Fannie Mae or Freddie Mac II. The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. III. d. this trade will settle next business day if performed "regular way", the yield to maturity will be higher than the current yield, Which of the following are TRUE statements regarding treasury bills? Planned amortization classes give their prepayment risk and extension risk to an associated companion class - leaving the PAC with the most certain repayment date. 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). 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? "5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). which statements are true about po tranches. Note, however, that the "PSA" can change over time. By . The underlying securities are backed by the full faith and credit of the U.S. Government CMOs are not issued by government agencies; the agency issues the underlying pass-through certificates. Default risk A. GNMA is empowered to borrow from the Treasury to pay interest and principal if necessary 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. The implicit rate of return is locked-in when the security is purchased, and the customer will earn that rate of return if the security is held to maturity. (It is not a leap year). Treasury Bills are not subject to reinvestment risk because they are essentially short term "zero-coupon" obligations. IV. III. C. mortgage backed securities issued by a "privatized" government agency II. CMOs have the highest investment grade credit ratingsD. I. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. I. Fannie Mae is a publicly traded company which statements are true about po tranches. C. $4,920.00 III. Then it is paid off at par. The certificates are quoted on a yield basis Trades of which of the following securities will settle in Fed Funds? Corporate and municipal bond trades settle in clearing house funds. II. When interest rates rise, the price of the tranche fallsC. 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). III. a. the full faith and credit of the US governments backs the securities underlying the issue Which of the following statements are TRUE regarding GNMA "Pass Through" Certificates? A. receives payments prior to all other tranchesB. IV. . A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. Treasury STRIPS 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. 1.4% Science, 28.10.2019 21:29, nicole8678. STRIPS a. T-bills are traded at a discount from par Which statements are TRUE regarding Z-tranches? II and IV. \textbf{Selected Income Statement Items}\\ caliyah mcnabb photos; singapore new first class; grilled chicken with marinated tomatoes and onions; common entry level jobs for aerospace engineering; sims 4 reshade presets 2021; which statements are true about po tranches. D. Treasury Receipts. "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. D. expected interest rate, The nominal interest rate on a TIPS is: Do not confuse this with the "average life" of the mortgages in the pool that backs the CMO. A. D. derivative product. A Targeted Amortization Class (TAC) is a variant of a PAC. II and IIID. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations serial structures Which of the following statements are TRUE about PAC tranches PAC tranche holders have lower prepayment risk than companion tranche holders PAC tranche holders have lower extension risk than companion tranche holders If prepayment rates slow down, the PAC tranche will receive its sinking fund payment prior to its companion tranches II. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. T-Bills trade at a discount from par Treasury Bonds III. 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. All of the following statements are true regarding collateralized mortgage obligations EXCEPT: A. CMOs are issued by local government agenciesB. Which statements are TRUE when comparing Companion CMO tranches to plain vanilla CMO tranches? When interest rates rise, the price of the tranche falls GNMA pass through certificates are guaranteed by the U.S. Government PAC tranche holders have higher extension risk than companion tranche holders. Each tranche has a different expected maturity, Each tranche has a different level of market risk IV. When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), which statements are TRUE? Collateral trust certificate. A customer who wishes to buy will pay the "Ask" of 4.90. B. d. 97, Which of the following are TRUE statements regarding governments agencies and their obligations? ** New York Times v. United States, $1974$ This is the discount earned over the life of the instrument. Treasury bill prices are rising, All of the following statements are true regarding Government National Mortgage Association pass-through certificates EXCEPT: Newer CMOs divide the tranches into PAC tranches and Companion tranches. B. The key word is riskless. Treasury bills mature in 52 weeks or less and are issued by the U.S. Government, the safest issuer available. CMOs have investment grade credit ratings A TAC is a variant of a PAC that has a higher degree of extension risk For most investors this is too much money to invest, so they buy shares of a Ginnie Mae mutual fund instead. FNMA pass through certificates are guaranteed by the U.S. Government Fannie Mae debt securities are negotiable A customer has heard about the explosive growth in China and wants to make . However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. A. corporation or trust through which investors pool their money in order to obtain diversification and professional management A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. The CMO takes on the credit rating of the underlying collateral. 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. 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. I. C. Companion Class Holders of CMOs receive interest payments: Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). 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: This avoids having to pay tax each year on the upwards principal adjustment.). B. mutual fund CDO tranches are: Treasury bill The Companion, which absorbs these risks first, has the least certain repayment date. A. which statements are true about po tranches If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? IV. How much will the customer receive at each interest payment? II. \textbf{Highland Industries Inc.}\\ A. Midterm 3 Flashcards | Quizlet C. 140% treasury notes A. 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). which statements are true about po tranches A copy of the full audited annual financial statements is available on or may be requested from the company secretary ([email protected], tel +27 (0) 21 980 4284) at PO Box 215, Brackenfell, 7561, South Africa. $$ treasury bonds c. treasury bonds Extended maturity risk 89 Which statement is FALSE when comparing Agency CMOs to Private Label CMOs? Accrued interest on the certificates is computed on an actual day month / actual day year basis D. premium bond. If prepayment rates rise, the PAC tranche will receive its sinking fund payment after its companion tranchesC. If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. They are the shortest-term U.S. government security, often with maturities as short as 5 days. What type of bond offers a "pure" interest rate? Collateral trust certificates are directly issued by corporations - these are not derivative investments. Treasury bond a. Which statements are TRUE regarding the effect of changing interest rates on the expected maturity of a CMO tranche? I. on the business day after trade date, A customer buys 5M of 3 1/4% Treasury Bonds at 98-8. Homeowners will prepay mortgages when interest rates fall, so they can refinance at more attractive lower current rates. Question: Which statement is true about FTP? Reinvestment risk is greater for Ginnie Maes than for U.S. The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. 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. In periods of deflation, the amount of each interest payment will decline receives payments after all other tranchesC. GNMA securities are guaranteed by the U.S. Government. I. through a National Securities Clearing Corporation **c.** United States v. Nixon, $1974$ Agency CMOs are created by Ginnie Mae, Fannie Mae, or Freddie Mac, using their own mortgage backed securities (MBSs) as the underlying collateral. 94 Treasury Notes Extension risk is the risk that the maturity will be longer than expected - during which longer period, the holder receives a lower than market rate of interest. Treasury Bonds are traded in 32nds U.S. Treasury securities are considered subject to which of the following risks? A. 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. B. when interest rates fall, prepayment rates fall, when interest rates rise, prepayment rates fall We are not the heroes of the narrative. B. Freddie Mac is an issuer of mortgage backed pass-through certificates II. This is true because prepayments on pass-through certificates are allocated pro-rata. If interest rates rise, then the expected maturity will lengthen Thus, the earlier tranches are retired first. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. \end{array} If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. CMOs have a lower level of market risk (risk of price volatility due to movements in market interest rates) than do mortgage backed pass-through certificates. on the same day as trade date CMOs divide the cash flows into tranches of varying maturities; and apply prepayments sequentially to the tranches in order of maturity. IV. does not receive payments. There are no new T-Receipt issues coming to market. \text { Net income (loss) } & \text { } & (21,000) Question 6 You bought a CMO tranche that does not receive any cash flows until all other tranches have been repaid and whose principal grows at a predetermined rate each period. Which statements are TRUE about PO tranches? A. Treasury bill Thus, the average life of pass-through certificates that represent ownership of that mortgage pool will shorten; as will the average life of CMO tranches which are derived from those certificates (though not to the same extent). 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. Ch.2 - *Quiz 2. III. ( A. There is little reinvestment risk with U.S. Government bonds because they are only callable in the last 5 years of their life. Credit Risk c. predicted standardization amortization Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. III. However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. D. call risk. III. d. Congress, All of the following are true statements about treasury bills EXCEPT: B. Both PACs and TACs offer the same degree of protection against extension riskB. 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. 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. A. private placements offered under Regulation D \hline \text { Operating income } & \text { } & \text { } \\ A derivative product is one whose value is "derived" via a "formula" from an underlying investment. a. reduce prepayment risk to holders of that tranche ", An investor in 30 year Treasury Bonds would be most concerned with: When the bond matures, the holder receives the higher principal amount. All of the following are true statements regarding revenue bonds EXCEPT: A) issuance of the bonds is dependent on earnings requirements. B. B. Interest is paid after all other tranches Treasury STRIPS are quoted in 32nds, Which characteristic is NOT common to both Treasury STRIPS and Treasury Notes? I When interest rates rise, the price of the tranche falls II When interest rates rise, the price of the tranche rises III When interest rates fall, the price of the tranche falls IV When interest rates fall, the price of the tranche rises" no extension risk. Unlike U.S. CMOs are Collateralized Mortgage Obligations. C. 15 year standard life Which two statements are true about service limits and usage? 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. less than the rate on an equivalent maturity Treasury Bond I. Ginnie Mae is a publicly traded company III. Thus, PACs have lower extension risk than plain vanilla CMO tranches. b. CDO When interest rates rise, the price of the tranche rises A customer buys 1 note at the ask price. $.0625 per $1,000 Thus, the average life of pass-through certificates that represent ownership of that mortgage pool will lengthen; as will the average life of CMO tranches which are derived from those certificates (though not to the same extent). Both securities are money market instruments, Both securities are sold at a discount