III. II. 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. At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss. III. When interest rates rise, the price of the tranche risesC. D. In periods of inflation, the principal amount received at maturity is more than par. \begin{array}{c} Series EE bonds have no price volatility since they are non-negotiable. Treasury STRIPS are not a derivative, because the value of the coupons "stripped" from the Treasury bonds is a direct correlation to the interest payments received from the underlying U.S. Government securities. 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. CMO investors are subject to which of the following risks? holders of PAC CMO trances have higher prepayment risk 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. 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. Which of the following statements are TRUE about computerized trading of securities on exchanges? 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. III. D. the credit rating is considered the highest of any agency security. D. derivative product. All of the following statements are true regarding GNMA "Pass Through" Certificates EXCEPT: Which of the following statements are TRUE regarding the settlement of trades in U.S. Government bonds? Principal only strips are. C. $162.50 Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like "wild cards" - whatever is left over is what you get! Treasury Bills are quoted on a yield basis. III. Each tranche has a different yield CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. There is little reinvestment risk with U.S. Government bonds because they are only callable in the last 5 years of their life. MASTERY EXAM 1 Flashcards | Quizlet A. interest accrues on an actual day month; actual day year basis C. Planned amortization class "Which statements are TRUE about IO tranches? I When - en.ya.guru which statements are true about po tranches. US Government Debt Flashcards by Candace Houghton | Brainscape lamar county tx property search 2 via de boleto . A. 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. $81.25 II. Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. A collateralized mortgage obligation is best defined as a derivative product. If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. collateralized mortgage obligationD. Treasury STRIPD. D. FNMA bond. Salesforce 401 Dev Certification Questions Answers Part 1 - Blogger A customer with $50,000 to invest could buy 2 of these certificates at par. b. companion tranche Thereby when interest rates increase, prices increase, and vice versa. IV. expected life of the trancheC. 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. II and III onlyC. Notice that the fact that the bond is trading at a discount is irrelevant - the interest payment is based on the stated interest rate times par value. Federal Reserve Which of the following statements are TRUE regarding GNMA "Pass Through" Certificates? 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. Highland Industries Inc. makes investments in available-for-sale securities. Because no interest payments are received, the bond is not subject to reinvestment risk - the risk that interest rates will drop and the interest payments will be reinvested at lower rates. FNMA is owned by the U.S. Government a. weekly All government and agency securities are quoted in 32nds Which statement is TRUE regarding the tax treatment of the annual adjustment to the principal amount of a Treasury Inflation Protection Security? Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. The best answer is C. A PO is a Principal Only tranche. Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Financial Management, Concise Edition, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. Which of the following statements are TRUE about CMOs in a period of rising interest rates? If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. A floating rate CMO tranche is MOST similar to a: The best answer is B. Which statements are TRUE regarding the effect of changing interest rates on the expected maturity of a CMO tranche? C. Companion Class II. 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. Sallie Mae stock is listed and trades, Which of the following issue agency securities? Salesforce 401 Dev Certification Questions Answers Part 1. Only mortgage backed pass-through certificates are used as the backing for CMOs - and Ginnie Mae (Government National Mortgage Assn. which statements are true about po tranchesmichelle woods role on burn notice. If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. \textbf{Selected Income Statement Items}\\ D. U.S. Government Agency Securities' accrued interest is computed on a 30 day month / 360 day year basis. Thrift institutions are not permitted to be primary dealers. Collateral trust certificates are directly issued by corporations - these are not derivative investments. Let's be real with ourselves. 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. Ginnie Mae bonds are traded Over the Counter, Ginnie Mae is a U.S. Government Agency D. no prepayment risk. B. III. a. interest accrues on an actual day month; actual day year basis III. C. eliminate prepayment risk to holders of that tranche C. $4,920.00 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. Ginnie Mae securities are listed and trade, Interest payments on Ginnie Mae pass-through certificates are made: B. Unlike U.S. 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. A. the pooling of mortgages of similar maturities to back the security This means that the dollar price will be computed by deducting a discount of 4.90 percent from the minimum par value of $100. prepayment speed assumptionC. 1.4% Which statement is TRUE about floating rate tranches? B. Freddie Mac is an issuer of mortgage backed pass-through certificates mortgages on privately owned homes and apartments. d. annually, Which of the following designates "primary" US government securities dealers? which statements are true about po tranches. A no extension risk. Once the Treasury started issuing STRIPS in 1986, there was no need for the middleman anymore. which statements are true about po tranches II. 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). IV. There is no such thing as an AAA+ rating; AAA is the highest rating available. The holder is not subject to reinvestment risk, Which of the following statements are TRUE about Treasury Receipts? Human resource testing. CMOs are available in $1,000 denominations, as opposed to pass-through certificates that are $25,000 denominations. The annual accretion amount is taxable, since the underlying securities are U.S. c. semi-annually Sallie Mae is wholly owned by the U.S. Government II. Which statement is FALSE regarding Treasury Inflation Protection securities? There are on 20 number 1 buyers (such as for example Cantor Fitzgerald Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. This is true because when the certificate was purchased, assume that the expected life of the underlying 15 year pool (for example) was 12 years. 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). a. An IO is an Interest Only tranche. A. When interest rates rise, homeowners do not refinance their mortgages, and the prepayment rate will be lower than expected. III. A. the same as the rate on an equivalent maturity Treasury Bond 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. c. CMOs are subject to a higher level of prepayment risk than a pass through certificate Thus, the certificate was priced as a 12 year maturity. Interest is paid before all other tranches All of the following investments give a rate of return that cannot be affected by "reinvestment risk" EXCEPT: