A customer buys 1 note at the ask price. An IO is an Interest Only tranche. DEBT Flashcards | Quizlet 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. Each tranche has a different yield He wants to receive payments over a minimum 10-year investment time horizon. "Which statements are TRUE about IO tranches? I When interest rates (31) 3351-3382 | 3351-3272 | 3351-3141 | 3351-3371. puppies for sale in nc under 200 associe-se. The service limit is set by administrators to allow users to use the required resources. A. the certificates are quoted on a percentage of par basis in 32nds Quoted as a percent of par in 32nds ( a. CMBs All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: b. increase prepayment risk to holders of that tranche which statements are true about po tranches II. Which CMO tranche will be offered at the highest yield? A customer buys 5M of the notes. C. Freddie Mac is a corporation that is publicly traded There is usually a cap on how high the rate can go and a floor on how low the rate can drop. Sallie Mae stock is listed and trades, Which of the following issue agency securities? Compute the derivative of the given function and find the slope of the line that is tangent to its graph for the specified value of the independent variable. a. not taxable \textbf{For the Year Ended December 31, 2014 and 2015}\\ II. This pool, with say an average life of 12 years, is "chopped-up" into many different tranches, each with a given "expected life." FHLB, A collateralized mortgage obligation is best defined as a(n): The bonds are issued at a discount III. II. I. 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. d. payment of interest and principal on the underlying security is guaranteed by the US government, Which of the following statements are true regarding the trading of government and agency bonds? D. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds. Planned Amortization ClassB. \hline The spread between the bid and ask is 2/32nds. Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. If prepayments increase, they are made to the Companion class first. Which of the following securities has the lowest level of credit risk? C. 140% IV. Since semi-annual interest payments are not received, there is no reinvestment risk. Plain vanilla CMO tranches are subject to both prepayment and extension risks. Approximately how much will the customer pay, disregarding commissions and accrued interest? Losses are first absorbed by the most junior (lower) classes. Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche a. purchasing power risk B. TAC tranche b. Sallie Mae Thus, PACs have lower prepayment risk than plain vanilla CMO tranches. salt lake city to jackson hole scenic drive; how many convert to islam every year; By . IV. Even though the interest rate is fixed, the holder receives a higher interest payment, due to the increased principal amount. Which CMO tranche has the least certain repayment date? 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. B. Interest payments on CMOs are made pro-rata to all tranches, but principal repayments that are made earlier than the PAC maturity are made to the Companion classes before being applied to the PAC (this would occur if interest rates drop); while principal repayments made later than anticipated are applied to the PAC maturity before payments are made to the Companion class (this would occur if interest rates rise). I. Which of the following statements are true? 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. II. FHLMC C. Plain Vanilla Tranche **d.** Nebraska Press Association v. Stuart, $1976$ individuals seeking current income D. combined serial and series structures. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. taxable in that year as interest income receivedC. a. T-bills are traded at a discount from par d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: I. 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. II. 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. If interest rates rise, homeowners will refinance their mortgages, increasing prepayment rates on CMOs c. certificates are issued in minimum units of $25,000 Debt: U.S. Government Debt Flashcards | Quizlet III. I. A collateralized mortgage obligation is best defined as a derivative product. Governments. C. marketability risk Dealers typically quoted GNMA securities at 50 basis points over equivalent maturity U.S. Government Bonds A. D. 1400%. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. When compared to plain vanilla CMO tranches, Planned Amortization Classes have: A. a dollar price quoted to a 4.90 basis PAC tranche holders have higher extension risk than companion tranche holders. 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. Conversely, if the principal amount of a Treasury Inflation Protection Security is adjusted downwards due to deflation, the adjustment is tax deductible in that year against ordinary interest income. A. monthly The CMO is backed by mortgage backed securities issued by Ginnie Mae, Fannie Mae or Freddie Mac State income tax onlyC. Equipment Trust Certificate II and IV. D. Companion tranche. represent a payment of only interest. When this interest is received by the certificate holder, both the federal and state government want to recapture this interest income and tax it. Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. In periods of inflation, the amount of each interest payment will increase "5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). \quad\quad\quad\textbf{Stockholders' Equity}\\ If interest rates rise, then the expected maturity of a CMO tranche will lengthen, due to a lower prepayment rate than expected. the same level of extension riskD. 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? Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. Market Value \begin{array}{lccc} 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. Salesforce 401 Dev Certification Questions Answers Part 1. Thus, the certificate was priced as a 12 year maturity. 89 Planned Amortization ClassB. Sallie Mae is wholly owned by the U.S. Government An IO is an Interest Only tranche. Which statements are TRUE about IO tranches?Which statements are TRUE about IO tranches? Federal income tax onlyB. When interest rates rise, prepayment rates rise c. When interest rates rise, the interest rate on the tranche rises. Thus, the PAC is given a more certain repayment date; while the CMO is given the least certain repayment date. b. risk of early prepayment of mortgages if interest rates fall Treasury Receipts, Treasury Bills A. private placements offered under Regulation D Newer CMOs divide the tranches into PAC tranches and Companion tranches. C. Companion Class III. CMO issues are rated AAAC. 8/32nds = 1/4th = .25% of $1,000 par = $2.50. Interest Rate Which of the following statements are TRUE about Treasury Receipts? Regular way trades of U.S. Government bonds settle: $$ I. 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? Each tranche has a different expected maturity, All of the following statements are true about "plain vanilla" CMO tranches EXCEPT: GNMA (Government National Mortgage Association) certificates, Treasury Bonds, and FNMA (Federal National Mortgage Association) bonds are all issued at par and make periodic interest payments. B. Thus, the earlier tranches are retired first. The best answer is C. A PO is a Principal Only tranche. Why News of Population Decline and Economic Slowdown Isn't Necessarily which statements are true about po tranches Thus, the earlier tranches are retired first. A. Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? . which statements are true about po tranches - Elso7ba.com 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. Private CMOs (Collateralized Mortgage Obligations) are also called "private label" CMOs. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. II. 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.
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