U.S. Government and Agency securities never trade flat (meaning without accrued interest), since a default is almost impossible. D. no prepayment risk. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. When interest rates rise, homeowners do not refinance their mortgages, and the prepayment rate will be lower than expected. Thus, the earlier tranches are retired first. The holder is subject to reinvestment risk the market is regulated by the SEC, the trading market is very active, with narrow spreads, Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? Collateralized mortgage obligation tranches that are available to the public are generally rated: A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. T-Bills have a maximum maturity of 2 years FNMA pass through certificates are guaranteed by the U.S. Government The primary risk associated with holding long term U.S. Government obligations is "purchasing power" risk. Which statements are TRUE regarding the effect of changing interest rates on the expected maturity of a CMO tranche? Prepayment rate 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. The Stanford-Binet test scores are well modeled by a Normal model with a mean of 100 and a standard deviation of 16. They do have purchasing power risk (the risk of inflation eroding real returns), but this is only an issue for long-term maturities. T-Notes are issued in book entry form with no physical certificates issued I. T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve The holder is not subject to reinvestment risk, Which of the following statements are TRUE about Treasury Receipts? Which CMO tranche has the least certain repayment date? Treasury Bills are quoted on a yield to maturity basis Determine the missing lettered items. Treasury STRIPS are quoted in 32nds, Which characteristic is NOT common to both Treasury STRIPS and Treasury Notes? Salesforce 401 Dev Certification Questions Answers Part 1. Extended maturity risk B. which statements are true about po tranches The CMO is backed by mortgage backed securities created by a bank-issuer The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. principal amount is adjusted to $1,050 B. CMOs have the highest investment grade credit ratingsD. Although controversial and the subject of recent lawsuits (e.g., Satchell et al. Mortgage backed pass-through certificates are "paid off" in a shorter time frame than the full life of the underlying mortgages. II. II. B. expected life of the tranche When interest rates rise, the price of the tranche fallsB. IV. Default risk Which of the following statements are true? C. more than the rate on an equivalent maturity Treasury Bond Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. a. Which statement is TRUE about PO tranches? "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. If interest rates fall, then the expected maturity will shorten. A customer buys 1 note at the ask price. Corporate and municipal bond trades settle in clearing house funds. If interest rates fall, then the expected maturity will lengthen Which of the following statements are TRUE about Treasury Receipts? Note, however, that the PSA can change over time. Which statements are TRUE about IO tranches?Which statements are TRUE about IO tranches? Plain VanillaC. Not too shabby. Treasury billD. 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 Ginnie's underwriting standards). When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. Standard deviation is a measure of the risk based on the expected variation of return on investment. B. All of the following statements are true about CMOs EXCEPT: A. CMO issues have a serial structureB. Which of the following is an example of a derivative product? Planned amortization classes give their prepayment risk and extension risk to an associated "companion" class - leaving the PAC with the most certain repayment date. I. D. Collateral trust certificate, Treasury bond treasury bonds 1. PAC tranche holders have higher extension risk than companion tranche holders. $.25 per $1,000C. 2 basis points fallC. a. prepayment speed assumption asked Jul 31, 2019 in Agile by sheetalkhandelwal. Regular way trades of U.S. Government bonds settle: The best answer is C. A PO is a Principal Only tranche. A. zero coupon bond derivative product Thrift institutions are not permitted to be primary dealers. money market funds D. When interest rates rise, the interest rate on the tranche rises, When interest rates rise, the price of the tranche falls, Which statement is TRUE about IO tranches? PACs differ from TACs in that TACs do not offer protection against a decrease in prepayment speedsC. B. higher prepayment risk, but the same extension risk as a Planned Amortization Class A. equity security This is a serial structure. A. lower prepayment risk, but the same extension risk as a Planned Amortization Class I. Plain Vanilla TrancheD. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: B. Treasury bond Federal income tax onlyB. I, III, IVD. Contract settlement by cash has different economic effects from those of a settlement by delivery. 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. 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. A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? Because they trade, the liquidity risk aspect of structured products is eliminated. 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. Each tranche has a different expected maturity, Each tranche has a different level of market risk C. guarantee of the financial institution from which the mortgages were purchased Interest income is accreted and taxed annually Sallie Mae stock does not trade, Sallie Mae is a privatized agency Which CMO tranche will be offered at the lowest yield? IV. "5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). collateralized mortgage obligationD. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. C. Macaulay duration 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 statements are true about po tranches. I. T-bills are registered in the owner's name in book entry form 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. B. The certificates are quoted on a yield basis Jaykaygram, PO-Tyre Factory, For JK Tyre & Industries Ltd. Kankroli - 313 342(Rajasthan) Phone: 02952-233400/233000 Fax: 02952-232018 Email id: investorjktyre@jkmail.com CIN: L67120RJ1951PLC045966 Pawan Kumar Rustagi Website: www.jktyre.com Vice President (Legal) Date: 27th February 2023 & Company Secretary If the maturity shortens, then for a given fall in interest rates, the price will rise slower. A derivative product is one whose value is derived via a formula from an underlying investment. I. Because the principal is being paid back at an earlier date, the price rises. A. term structures \text { Net income (loss) } & \text { } & (21,000) B. the U.S. Treasury issues 26 week T- BillsD. 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. c. Office of the Comptroller of Currency b. interest payments are exempt from state and local taxes d. CAB, Which treasury security is NOT sold on a regular auction schedule? when interest rates fall, prepayment rates rise It acts like a long-term zero-coupon bond, so it is most susceptible to interest rate risk. 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. $100,000. IV. C. $.625 per $1,000 Targeted Amortization Class. T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve Which statements are TRUE when comparing Companion CMO tranches to plain vanilla CMO tranches? T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction b. floating rate tranche When interest rates rise, the interest rate on the tranche falls. III. Which two statements are true about service limits and usage? mortgage backed securities created by a bank-issuerC. Because of this payment structure, it is most similar to a long-term bond, which pays principal at the end of its life. The service limit is a quota set on a resource. If interest rates rise, then the expected maturity will lengthen These trades are settled through GSCC - the Government Securities Clearing Corporation. I. FNMA c. eliminate prepayment risk to holders of that tranche C. eliminate prepayment risk to holders of that tranche A. standard deviation of returns CMOs are often quoted on a yield spread basis to similar maturity: The collateral backing private CMOs consists of: When interest rates rise, the price of the tranche rises III. B. step up step down bond I. 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. A $1,000 par Treasury Note is quoted at 101-3 - 101-5. The note pays interest on Jan 1 and Jul 1. A. a dollar price quoted to a 4.90 basis Therefore, both PACs and TACs provide "call protection" against prepayments during period of falling interest rates. Vob the vob is aimed at providing employees with an d. TAC tranche, Which statement is FALSE about CMBs? Which statements are TRUE regarding CMOs? In periods of deflation, the interest rate is unchanged On the other hand, extension risk is increased. T-Notes are issued in book entry form with no physical certificates issued Whereas CMOs backed by Fannie, Freddie or Ginnie mortgage-backed securities are rated AAA, the rating of "private label" CMOs is dependent on the credit quality of the underlying mortgages. There are no new T-Receipt issues coming to market. I. through a National Securities Clearing Corporation IV. Their focus is on obtaining deposits that are then used to make mortgages to homeowners. 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. A. the same as the rate on an equivalent maturity Treasury Bond III. III. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. C. $4,920.00 C. Agency CMOs take on the credit rating of the underlying agency securities while Private Label CMOs are assigned credit ratings by independent credit ratings agencies T-Bills trade at a discount from par In periods of deflation, the amount of each interest payment is unchanged B. increase prepayment risk to holders of that tranche A. Payments to holders of Ginnie Mae pass-through certificates: All of them I, II, IVD. Principal is paid after all other tranches, A floating rate CMO tranche is MOST similar to a: C. option 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. Commercial banks 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. b. risk of early prepayment of mortgages if interest rates fall The price movements of IOs are counterintuitive! II. Treasury Bills are quoted in 32nds on the business day after trade date, through the Federal Reserve System 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, II, IVC. General Obligation Bonds B. D. combined serial and series structures. 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: Freddie Mac debt issues are directly guaranteed by the U.S. Government **d.** Nebraska Press Association v. Stuart, $1976$ 26 weeks 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. Users should NOT be allowed to delete review records after job application records have been approved. Federal Home Loan Bank Bonds. a. Treasury bill prices are rising, All of the following statements are true regarding Government National Mortgage Association pass-through certificates EXCEPT: Which of the following are TRUE statements regarding government agencies and their obligations? All of the following statements are true regarding this trade of T-Notes EXCEPT: When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. I. If the principal amount of a Treasury Inflation Protection Security is adjusted upwards due to inflation, the adjustment amount is taxable in that year as ordinary interest income. FRB $$ Collateral trust certificates are directly issued by corporations - these are not derivative investments. b. the securities are sold at a discount A. A. discount rate Federal Reserve IV. I Treasury Stock receives dividends II Treasury Stock votes III Treasury Stock reduces the number of shares outstanding IV Treasury Stock purchases are used to increase reported Earnings Per Share A. I and II B. III and IV C. II, III, IV D. I, II, III, IV B. III and IV
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