which statements are true about po tranches

IV. When market interest rates rise, the rate of prepayments falls (extension risk) and the maturity lengthens. Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. CMOs are issued by government agencies, CMOs are backed by agency pass through securities held in trust Agency CMOs are backed by underlying mortgage backed pass-through certificates issued by that agency, while Private Label CMOs are backed only by mortgage backed securities issued by private lenders A customer who wishes to buy will pay the "Ask" of 4.90. When interest rates rise, the interest rate on the tranche risesD. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. when interest rates fall, prepayment rates rise A. On the other hand, extension risk is increased. Government agency securities have an indirect backing (or implicit) by the U.S. Government. Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. Often CMO tranches are quoted on a "yield spread" basis to equivalent maturing U.S. Government Agency issues (makes sense since agency issues are the "collateral" for such securities). However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. Which statements are TRUE regarding collateralized mortgage obligations? B. $$ D. Freddie Mac debt issues are directly guaranteed by the U.S. Government. B. are made semi-annually \hline This is the discount earned over the life of the instrument. Selected income statement items for the years ended December 31, 2014 and 2015, plus selected items from comparative balance sheets, are as follows: \text{Retained earnings}&\$175,400&\$220,000&\\ REITs are common stock companies that make direct investments in real estate. individual wishing to avoid reinvestment risk, money market funds A. Freddie Mac buys conventional mortgages from financial institutions For most investors this is too much money to invest, so they buy shares of a Ginnie Mae mutual fund instead. Market Value pasagot po. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A. Fannie Mae Pass Through CertificatesB. I. all rated AAA Treasury NotesC. The interest income on U.S. Government obligations and most agency obligations is subject to Federal income tax but is exempt from state and local tax. C. the same level of prepayment risk but a lower level of extension risk than a Planned Amortization Class CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. 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. CMOs have investment grade credit ratings Quiz #1 Flashcards by Candace Houghton | Brainscape Principal only strips are. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. FNMA pass through certificates are not guaranteed by the U.S. Government, Which of the following are TRUE statements regarding government agencies and their obligations? Vob the vob is aimed at providing employees with an Because these T-Notes are trading at a premium, the yield to maturity will be lower than the current yield. These are issued at a discount to face and each interest payment made brings the notional principal of the bond closer to par. 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 statement is TRUE about floating rate tranches? which statements are true about po tranches Therefore, as interest rates move up, the interest rate paid on the tranche steps up as well; and when interest rates drop, the interest rate paid on the tranche steps down as well. Which statements are TRUE regarding Treasury debt instruments? D. In periods of inflation, the principal amount received at maturity is more than par. It is primarily associated as a tranche of a collateralized mortgage obligation (CMO), which also. when interest rates fall, prepayment rates rise, CMO "planned amortized classes" (PAC tranches): Which statement is TRUE about PO tranches? \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ I. The note pays interest on Jan 1st and Jul 1st. which statements are true about po tranches (TIPS are usually purchased in tax qualified retirement plans that are tax-deferred. II. Each tranche has a different level of market risk Newer CMOs divide the tranches into PAC tranches and Companion tranches. Home . FHLMC rated based on the credit quality of the underlying mortgages CMO investors are subject to which of the following risks? c. CMOs are subject to a higher level of prepayment risk than a pass through certificate For the exam, these securities are still rated AAA. Governments, on which accrued interest is computed on an actual day month/actual day year basis, Agency securities' accrued interest is computed on a 30 day month/360 day year basis. Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded a. GNMA is empowered to borrow from the treasury to pay interest and some principal if necessary TAC pricing will be more volatile compared to PAC pricing during periods of rising interest rates. 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 Which statements are TRUE about IO tranches?Which statements are TRUE about IO tranches? I, II, IVD. Which statement is TRUE about floating rate tranches? Which of the following is an original issue discount obligation? The note pays interest on Jan 1 and Jul 1. Which of the following statements are TRUE when comparing the Planned Amortization Classes (PAC tranches) to the Companion Classes of a CMO? through the Federal Reserve System If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? II. The collateral backing private CMOs consists of: A. private placements offered under Regulation DB. $4,914.06 b. they are "packaged" by broker-dealers which statements are true about po tranches T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction C. When interest rates rise, the interest rate on the tranche falls Its price moves just like a conventional long term deep discount bond. There were no dividends. 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. B. prepayment speed assumption A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. FNMA is owned by the U.S. Government A. A customer with $50,000 to invest could buy 2 of these certificates at par. b. increase prepayment risk to holders of that tranche A riskless security maturing in 52 weeks or less is a: A. a. prepayment speed assumption Each tranche of a CMO, in effect, represents a differing expected maturity, hence each tranche has a different level of market risk. Thus, the earlier tranches are retired first. 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. IV. B. interest payments are exempt from state and local tax 29 terms. T-Bills are issued at a discount from par. They do have purchasing power risk (the risk of inflation eroding real returns), but this is only an issue for long-term maturities. a. not taxable . a. purchasing power risk T-Bills trade at a discount from par III. 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. Which of the following statements regarding collateralized mortgage obligations are TRUE? Treasury STRIPD. D. derivative product. 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. A TAC bond protects against prepayment risk; but does not offer the same degree of protection against extension risk. All of the following statements are true about PAC tranches EXCEPT: A. Targeted Amortization ClassC. Determine the missing lettered items. In periods of deflation, the interest rate is unchanged If the maturity lengthens, then for a given rise in interest rates, the price will fall faster, Which statements are TRUE about changes in market interest rates and collateralized mortgage obligations? Newest issues of Treasury Notes are issued in: A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. Freddie Mac debt issues are directly guaranteed by the U.S. Government 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 securities are the safest investment - they have virtually no credit risk (default risk) and almost no marketability risk. The PAC, which is relieved of these risks, is given the most certain repayment date. A TAC is a variant of a PAC that has a higher degree of extension risk IV. PAC tranche holders have lower prepayment risk than companion tranche holdersD. The certificates are quoted on a percentage of par basis Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. marketability risk I. \begin{array}{c} The best answer is C. The bond is quoted at 95 and 24/32nds. The market has never recovered. 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. Private CMOs (Collateralized Mortgage Obligations) are also called "private label" CMOs. Because the principal is being paid back at an earlier date, the price rises. During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. 94 A floating rate CMO tranche is MOST similar to a: The best answer is B. 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. 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. Test 1z0-1085-20-1 - DAYPO All of the following are true statements regarding revenue bonds EXCEPT: A) issuance of the bonds is dependent on earnings requirements. 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). Treasury STRIPS are not suitable investments for individuals seeking current income The CMO is backed by mortgage backed securities created by a bank-issuer Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. STRIPS Fannie Mae debt securities are negotiable, When comparing the debt issues of Ginnie Mae to Fannie Mae, which statements are TRUE? Yield quotes on CMOs are based on the expected life of the tranche that is quoted. D. no prepayment risk. What is the current yield, disregarding commissions? II. Arrange the following CMO tranches from lowest to highest yield: II rated based on the credit quality of the underlying mortgages. A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. A. Yield quotes for collateralized mortgage obligations are based upon: A. average life of the trancheB. C. security which is backed by real property and/or a lien on real estate quarterlyC. The best answer is B. Domestic broker-dealers Planned amortization classD. TACs do not offer the same degree of protection against extension risk as do PACs during periods of rising interest rates - hence their prices will be more volatile during such periods. C. $162.50 Treasury STRIPS are quoted in 32nds, Which characteristic is NOT common to both Treasury STRIPS and Treasury Notes? $$ IV. which statements are true about po tranches 8/32nds = 1/4th = .25% of $1,000 par = $2.50. There are approximately 20 such firms. B. a dollar price quoted to a 5.00 basis If interest rates rise, then homeowners will defer moving at the anticipated rate, since they have a good deal with their existing mortgage. The purchaser of a CMO tranche experiences extension risk during periods when interest rates: A. riseB. Thus, the certificate was priced as a 12 year maturity. They are the shortest-term U.S. government security, often with maturities as short as 5 days. the U.S. Treasury issues 26 week T- BillsD. Federal Home Loan Bank Bonds. Highland Industries Inc. makes investments in available-for-sale securities. IV. Again, these are derived via a formula. III. B. interest payments are subject to state and local tax Brainscape helps you realize your greatest personal and professional ambitions through strong habits and hyper-efficient studying. Prepayment speed assumption which statements are true about po tranches A newer version of a CMO has a more sophisticated scheme for allocating cash flows. GNMA pass through certificates are guaranteed by the U.S. Government, All of the following statements are true about the Government National Mortgage Association Pass-Through Certificates EXCEPT: All of the following statements are true regarding this trade of T-notes EXCEPT: Treasury Notes III. the U.S. Treasury issues 13 week T- BillsC. If interest rates fall rapidly after the mortgage is issued, prepayment rates speed up; if they rise rapidly after issuance, prepayment rates fall. interest payments are exempt from state and local tax B. security which is backed by the full faith, credit, and taxing power of the U.S. Government B. When interest rates rise, the price of the tranche rises Treasury Notes 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. A customer buys 1 note at the ask price. I have underlying mortgage collateral that is backed by Fannie Mae, Freddie Mac or Ginne MaeII have underlying mortgage collateral that is backed only by the credit quality of those mortgagesIII are all rated AAAIV are rated based on the credit quality of the underlying mortgages. 0. which statements are true about po tranches II. I. 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. The last 3 statements are true. II. C. the trade will settle in Fed Funds The best answer is C. A PO is a Principal Only tranche. T-Notes are issued in book entry form with no physical certificates issued 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). A. lower prepayment risk, but the same extension risk as a Planned Amortization Class C. in varying dollar amounts every month II. Because the principal is being paid back at a later date, the price falls. These trades are settled through GSCC - the Government Securities Clearing Corporation. a. interest is paid at maturity CMOs are backed by agency pass-through securities held in trustC. which statements are true about po tranches - Elso7ba.com B. increase prepayment risk to holders of that tranche B. expected life of the tranche Again, these are derived via a formula. C. Plain Vanilla Tranche T-Bills are the most actively traded money market instrument, Which statements are always TRUE about Treasury Bonds? PACs differ from TACs in that TACs do not offer protection against a decrease in prepayment speedsC. 1. The Stanford-Binet test scores are well modeled by a Normal model with a mean of 100 and a standard deviation of 16. D. A TAC is a variant of a PAC that has a lower degree of extension risk. Fannie Maes. 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. If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. T-bills are issued in bearer form in the United States are stableD. I, II, III, IV. 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)? Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. III. A customer has heard about the explosive growth in China and wants to make . The interest received from a Collateralized Mortgage Obligation is subject to: A. Both securities are issued by the U.S. Government It acts like a long-term zero coupon bond. B. quarterly The bonds are issued at a discount III. If a customer buys 5 T-notes on Monday, Mar 31st in a regular way trade, how many days of accrued interest are owed to the seller? This is the risk that inflation reduces the value of future interest payments and the principal repayment yet to be received in the future. When the bills mature, the difference between the purchase price and the redemption value at par is taxable as interest income. B. In periods of inflation, the coupon rate remains unchanged **b. I When interest rates rise, mortgage backed pass through certificates fall in price faster than regular bonds of the same maturityII When interest rates rise, mortgage backed pass through certificates fall in price slower than regular bonds of the same maturityIII When interest rates fall, mortgage backed pass through certificates rise in price faster than regular bonds of the same maturityIV When interest rates fall, mortgage backed pass through certificates rise in price slower than regular bonds of the same maturity, A. I and IIIB. Real Estate Investment TrustD. III. II. II. Finally, each American Depositary Receipt represents a fixed number of foreign shares held in trust. 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). 24/32nds = .75, so the bond is quoted at 95.75% of $1,000 par value = $957.50. If interest rates rise, then the expected maturity of a CMO tranche will lengthen, due to a lower prepayment rate than expected. The bonds are issued at a discount I, II, III, IV. Beitrags-Autor: Beitrag verffentlicht: 22. The spread between the bid and ask is 2/32nds. Annual interest on the bonds is 3.25% of $5,000 face amount equals $162.50. B. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? A derivative product is one whose value is "derived" via a "formula" from an underlying investment. \quad\quad\quad\textbf{Stockholders' Equity}\\ Ginnie Mae securities are listed and trade, Interest payments on Ginnie Mae pass-through certificates are made: Default risk Payments to holders of Ginnie Mae pass-through certificates: A. CMOs are often quoted on a yield spread basis to similar maturity: Interest received from all of the following securities is exempt from state and local taxes EXCEPT: Which statements are TRUE regarding Treasury STRIPS? \end{array} I. coupon rate is adjusted to 9% $$ What is NOT a risk of investing in a GNMA? 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. Planned Amortization Class III. CMOs are packaged and issued by broker-dealers. Accrued interest on the certificates is computed on a 30 day month / 360 day year basis, The certificates are quoted on a percentage of par basis rated based on the credit quality of the underlying mortgages Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. Regulations: Securities Exchange Act of 1934, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Daniel F Viele, David H Marshall, Wayne W McManus, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman. Besides, these portions of bonds or mortgages have varying amounts of risk and maturity. III. A. 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 If interest rates fall, then the expected maturity will lengthen b. risk of early prepayment of mortgages if interest rates fall Which statements are TRUE about IO tranches? III. Mortgage backed pass-through certificates are paid off in a shorter time frame than the full life of the underlying mortgages. All of the following statements are true regarding this trade of T-Notes EXCEPT: Treasury bill prices are rising, All of the following statements are true regarding Government National Mortgage Association pass-through certificates EXCEPT: There is usually a cap on how high the rate can go and a floor on how low the rate can drop. A. Ginnie Mae CertificateC. II. C. Planned amortization class When interest rates rise, the price of the tranche fallsC. B. in constant dollar amounts every month Answers: 3 Get Iba pang mga katanungan: Science. This interest income is subject to both federal income tax and state and local tax. Faro particip en la Semana de la Innovacin 24 julio, 2019. C. Pay interest at maturity Treasury Bond \quad\quad\quad\textbf{Assets}\\ $100,000. A. holders of "plain vanilla" CMO tranches have lower prepayment risk If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches.