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). Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? Quoted as a percent of par in 32nds I, II, III, IV. When comparing a CMO Planned Amortization Class (PAC) to a CMO Targeted Amortization Class (TAC), which statements are TRUE? 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). If this distribution well models the applicant pool, a randomly chosen applicant would have what probability of scoring in the following regions? does not receive payments. 2023 Which statement is true about personas? 1-Mar-23 C. FNMA Pass Through Certificates FNMA is owned by the U.S. Government C. U.S. Government bond d. CMOs receive the same credit rating as the underlying pass-through securities held in trust, CMOs are subject to a higher level of prepayment risk than a pass through certificate, Which statements are TRUE about prepayment experience on collateralized mortgage obligations? \textbf{Highland Industries Inc.}\\ Unlike regular bonds, where when interest rates rise, prices fall, with an IO, when interest rates rise, prices rise! Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: I. II. D. Treasury Receipts. Targeted Amortization Class Thus, average life of the TAC is extended until the arrears is paid. Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. which statements are true about po tranches. taxable in that year as long term capital gainsD. Collateral trust certificates are directly issued by corporations - these are not derivative investments. T-Bills are issued at a discount from par. asked Jul 31, 2019 in Agile by sheetalkhandelwal. A. GNMA certificate An exception is the interest income received from mortgage backed pass through certificates (issued by GNMA, FNMA, FHLMC). D. Zero Tranche. which statements are true about po tranches - faro.com.pe 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). 19-29 Cash Flows for GNMA IO and PO the same level of extension riskD. Accrued interest on the certificates is computed on an actual day month / actual day year basis At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. One of the question asked in certification Exam is, Which statement is true about personas? II. IV. Thus, the certificate was priced as a 12 year maturity. III. 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. Local income tax onlyD. II. A. Fannie Mae CertificateB. I. CMOs make payments to holders monthly which statements are true about po tranches holders of "plain vanilla" CMO tranches have lower prepayment risk IV. 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. Thus, the earlier tranches are retired first. C. Planned amortization class The best answer is B. The note pays interest on Jan 1 and Jul 1. c. the interest coupons are sold off separately from the principal portion of the obligation D. no prepayment risk. Freddie Mac - Federal Home Loan Mortgage Corporation - buys conventional mortgages from financial institutions and packages them into pass through certificates. (Attachments: # 1 Civil Cover Sheet) (Khoury, Cholla) (Entered: 06/30/2021). III. Targeted amortization class Which statements are TRUE regarding Treasury debt instruments? market value A TAC bond is designed to pay a target amount of principal each month. 24/32nds = .75, so the bond is quoted at 95.75% of $1,000 par value = $957.50. b. increase prepayment risk to holders of that tranche 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? In periods of deflation, the principal amount received at maturity is unchanged at par, Which statement is FALSE regarding Treasury Inflation Protection securities? Commercial banks GNMA Pass-Through Certificates. derivative product III. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. The service limit is a quota set on a resource. I. 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. $$ US Government Debt Flashcards by Candace Houghton | Brainscape I Interest is paid before all other tranchesII Interest is paid after all other tranchesIII Principal is paid before all other tranchesIV Principal is paid after all other tranches. C. When interest rates rise, the interest rate on the tranche falls The holder is not subject to reinvestment risk, Treasury STRIPS are not suitable investments for individuals seeking current income When interest rates rise, the price of the tranche rises 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" reduce prepayment risk to holders of that tranche II and IIID. abbreviation for Collateralized Debt Obligation, this is a structured product that invests in CMO tranches and was used to create tranches based on underlying sub-prime mortgages. Regular way trades of U.S. Government bonds settle: B. the certificates are available in $1,000 minimum denominations D. Companion tranche. Interest rate risk, 140 Basis points equal: The first 3 statements are true. II. This "prepayment speed assumption" is used to "guesstimate" the expected life of a mortgage backed pass-through certificate. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. If interest rates fall, then the expected maturity will lengthen Series EE bonds have no price volatility since they are non-negotiable. 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). A. collateral trust certificateB. I. interest rates are falling In periods of deflation, the amount of each interest payment will decline C. CMBs are sold at a regular weekly auction B. purchasing power risk Hence the true statements are: CMOs are not issued by government agencies; the agency issues the underlying pass-through certificates. 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. U.S. Government Agency Securities are quoted in 1/32nds **e.** Collin v. Smitb, $1978$. Which statements are TRUE regarding Treasury debt instruments? They do have purchasing power risk (the risk of inflation eroding real returns), but this is only an issue for long-term maturities. CMOs are often quoted on a yield spread basis to similar maturity: A. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. 1 / 39 The best answer is B. ETNs are "Exchange Traded Notes." They are an equity index linked structured product, that is listed and trades on an exchange. An annual upward adjustment due to inflation is taxable in that year; an annual downward adjustment due to deflation is not tax deductible in that year.B. IV. III. The safest bonds listed are Treasury bonds (backed by the U.S. Government) and General obligation bonds (backed by unlimited municipal taxing power). There could be more than one bond class (or tranche), and bond classes vary depending on how they will share any losses resulting from borrowers' defaults (or prepayment, which we will see later). B. Principal is paid before all other tranches However, T-Receipts still trade until they all mature. 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). Principal repayments made earlier than that required (earlier than expected) 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. Foreign broker-dealers Treasury billD. Which security has, as its return, the pure interest rate? In periods of deflation, the principal amount received at maturity will decline below par 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. Which of the following statements are TRUE regarding GNMA "Pass Through" Certificates? 13 weeks Which statement is TRUE about PO tranches? Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. GNMA securities are guaranteed by the U.S. Government. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. \begin{array}{lcc} During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. II. Because they trade, the liquidity risk aspect of structured products is eliminated. 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. II. Since each tranche represents a differing maturity, the yield on each will differ, as well. "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. For example, 30 year mortgages are now typically paid off in 10 years - because people move. $$ C. eliminate prepayment risk to holders of that tranche coupon rate remains at 4% III. Treasury STRIPS Since interest is paid semi-annually, each payment will be for $81.25. Treasury bondB. A. I. Treasury STRIPS D. Treasury Stock, Which of the following are TRUE statements about Treasury Bills? B. security which is backed by the full faith, credit, and taxing power of the U.S. Government The fact that repayment is expected earlier than the life of the mortgages is based on the mortgage pool's: Interest income is accreted and taxed annually $.625 per $1,000 A. I. Vob the vob is aimed at providing employees with an A customer will buy at the ask price, which is 98 and 9/32nds = 98.28125% of $5,000 par = $4,914.06. Because the MBSs are AAA rated, the CMOs created from them are AAA rated as well. Interest income is accreted and taxed annually, US Treasury securities are considered subject to which of the following risks? B. Fully depreciated equipment costing $50,000 is discarded. Treasury Bills are quoted on a yield to maturity basis A customer buys 1 note at the ask price. II and IV. 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. 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. Domestic broker-dealers A $1,000 par Treasury Note is quoted at 101-3 - 101-5. This is true because when the certificate was purchased, assume that the average life of the underlying 15 year pool (for example) was 12 years. Therefore, both PACs and TACs provide call protection against prepayments during period of falling interest rates. 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" Question: Q5. TACs are like a "one-sided" PAC - they protect against prepayment risk, but not against extension risk. PAC tranche holders have higher extension risk than companion tranche holders. 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. holders of "plain vanilla" CMO tranches have higher prepayment risk, Which CMO tranche is most susceptible to interest rate risk? What is the current yield, disregarding commissions? \hline Standard deviation is a measure of the risk based on the expected variation of return on investment. Market Value Bank issuers make non-conforming mortgages that cannot be sold to Fannie, Freddie or Ginnie and rather than hold them as investments, they can pool them into mortgage backed securities which are then placed into trust and sold as private label CMOs. I. are made monthly individuals seeking current income, Which of the following are issued with a fixed coupon rate? D. Guaranteed by the U.S. Government, Which of the following statements are TRUE about the Government National Mortgage Association (GNMA)? FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation I. I. Thus, the earlier tranches are retired first. When interest rates rise, prepayment rates rise A 5 year $1,000 par 3 1/2% Treasury Note is quoted at 101-4 - 101-8. II. a. CMBs GNMA pass through certificates are guaranteed by the U.S. Government The CMO is backed by mortgage backed securities created by a bank-issuer serial structures The PAC class has a lower level of prepayment risk than the Companion class What type of bond offers a "pure" interest rate? Certain CMO tranches may represent a right to receive interest only ("IOs"), principal only ("POs") or an amount that remains after floating-rate tranches are paid (an "inverse floater"). Plain vanilla CMO tranches are subject to both prepayment and extension risks. I. Which of the following statements are TRUE regarding Treasury Stock? \text{Retained earnings}&\$175,400&\$220,000&\\ how to build a medieval castle in minecraftEntreDad start a business, stay a dad.
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