which statements are true about po tranches which statements are true about po tranches

individual wishing to avoid reinvestment risk, money market funds CMOs have investment grade credit ratings Which security has, as its return, the pure interest rate? a. CMOs are available in $1,000 denominations 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. CMOs are often quoted on a yield spread basis to similar maturity: A. I, II, IVC. CDO tranches are: There were no dividends. b. floating rate tranche However, Interest Only tranche is quite different from a typical bond, simply because when market interest rate increases the rate of prepayment decreases, which in turn makes the rate of maturity to be longer. Interest earned is subject to reinvestment risk, The bonds are issued at a discount A. standard deviation of returns IV. It's often empty, meaningless hype driven by consultants and schools and the cottage industry of courses, books, and certificate programs. If interest rates fall, then the expected maturity will shorten Yield quotes for collateralized mortgage obligations are based upon: A. average life of the trancheB. In periods of deflation, the amount of each interest payment will decline 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. Treasury bill prices are rising, All of the following statements are true regarding Government National Mortgage Association pass-through certificates EXCEPT: If prepayments increase, they are made to the Companion class first. They are the shortest-term U.S. government security, often with maturities as short as 5 days. pasagot po. C. 140% b. treasury notes The CMO purchaser buys a specific tranche. Principal is paid after all other tranches, Interest is paid after all other tranches Universal Containers has built a recruiting application with 2 custom objects, Job Applications and Reviews, that have a master-detail relationship. B. Private CMOs (Collateralized Mortgage Obligations) are also called private label CMOs. Federal Home Loan Bank Bonds. I. all rated AAA The holder is not subject to reinvestment risk, Treasury STRIPS are not suitable investments for individuals seeking current income Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. 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. Sallie Mae stock is listed and trades, Which of the following issue agency securities? I. III. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. II. c. Office of the Comptroller of Currency T-bills are issued at a discount, Which statements are TRUE regarding treasury STRIPS? III. If Treasury bill yields are dropping at auction, this indicates that: A. lower prepayment risk, but the same extension risk as a Planned Amortization Class TACs are like a one-sided PAC - they protect against prepayment risk, but not against extension risk. Freddie Mac debt issues are directly guaranteed by the U.S. Government A customer who wishes to buy will pay the "Ask" of 4.90. If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. d. CAB, Which treasury security is NOT sold on a regular auction schedule? Commercial banks 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. represent a payment of both interest and principal III. Because the principal is being paid back at an earlier date, the price rises. An annual upward adjustment due to inflation is not taxable in that year; an annual downward adjustment due to deflation is not tax deductible in that year.D. Which of the following statements regarding collateralized mortgage obligations are TRUE? If the inflation rate during the first year of the security's life is 5%, the: Collateralized mortgage obligations may be backed by all of the following securities EXCEPT: In periods of deflation, the principal amount received at maturity will decline below par 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 Default risk Treasury bondB. Note, however, that the "PSA" can change over time. D. Collateral trust certificate, Treasury bond A. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. can be backed by sub-prime mortgages Thus, interest payments are made monthly. 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. Mortgage backed pass through certificates are sold in minimum denominations of $25,000 (instead of the typical $1,000 for other bonds and $100 for Treasury issues). a. purchasing power risk 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. Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche All of them c. STRIPS I CMO prices fall slower than similar maturity regular bond pricesII CMO prices fall faster than similar maturity regular bond pricesIII The expected maturity of the CMO will lengthen due to a slower prepayment rate than expectedIV The expected maturity of the CMO will lengthen due to a faster prepayment rate than expected. serial structures A. 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. holders of PAC CMO trances have higher prepayment risk how to ultimate male vitamin; sildenafil (viagra) dick enlargment surgery; how to healthy natural lubricants; which drug for erectile dysfunction definition cialis Governments. Which statements are TRUE regarding the effect of changing interest rates on the expected maturity of a CMO tranche? expected life of the tranche III. I The interest income on the Receipts is subject to Federal income tax each yearII The interest income on the Receipts is exempt from Federal income taxIII An investment in Treasury Receipts is free from reinvestment riskIVAn investment in Treasury Receipts is subject to reinvestment risk. This avoids having to pay tax each year on the upwards principal adjustment.). REITs are common stock companies that make direct investments in real estate. For example, 30 year mortgages are now typically paid off in 10 years - because people move. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. Which statements are TRUE about PO tranches? 1 mortgage backed pass through certificate at par Government agency securities have an indirect backing (or implicit) by the U.S. Government. Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. D. Treasury Bond. A Targeted Amortization Class (TAC) is a variant of a PAC. The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. \text{Valuation allowance for available-for-sale investments}&12,000&(11,000)&h.\\ III and IV onlyC. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. T-Bills are issued at a discount from par. A PAC offers protection against both prepayment risk (prepayments go to the Companion class first) and extension risk (later than expected payments are applied to the PAC before payments are made to the Companion class). D. $6.25 per $1,000. B. quarterly . The best answer is B. U.S. Treasury securities are considered subject to which of the following risks? which statements are true about po tranches. \hline \text { Operating income } & \text { } & \text { } \\ 15 year standard lifeD. Users should NOT be allowed to delete review records after job application records have been approved. There are no new T-Receipt issues coming to market. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. 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. A mortgage-backed security (MBS) that goes through this processseparating the interest and. B. The spread between the bid and ask is 8/32nds. Product management is the new "agile" (or worse, SAFE). Treasury Bills are not subject to reinvestment risk because they are essentially short term "zero-coupon" obligations. d. Congress, All of the following are true statements about treasury bills EXCEPT: 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. D. $5,000, A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. 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). Treasury STRIP Interest is paid before all other tranches 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. All pass through certificates pass on the monthly mortgage payments received from the pooled mortgages to the certificate holders. This is extension risk - the risk that the CMO tranche will have a longer than expected life, during which a lower than market rate of return is earned. D. the credit rating is considered the highest of any agency security. Bond classes can be categorised as senior tranches or subordinated (junior) tranches. principal amount remains at $1,000. Companion. 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? Which statements are TRUE regarding Z-tranches? U.S. Government Agency Securities trade flat Which statement is TRUE about PO tranches? Price volatility of a CMO issue would most closely parallel that of an equivalent maturity: A. Fannie Mae debt securities are negotiable B. The housing bubble that ended badly in 2008 with a market crash was fueled by massive issuance of sub-prime mortgages to unqualified home buyers, that were then packaged into CDOs and sold to unwitting institutional investors who relied on the credit rating assigned by S&P or Moodys. The market has never recovered. The Federal Reserve allows commercial banks (such as Citibank and J.P. Morgan Chase); domestic broker-dealers (such as Goldman Sachs); and foreign broker-dealers (such as Daiwa Securities and Nomura Securities); and foreign banks such as Royal Bank of Scotland; to be primary dealers. If interest rates rise, then the expected maturity will shorten rated based on the credit quality of the underlying mortgages CMO issues are rated AAAC. Securities and Exchange Commission Fully depreciated equipment costing $50,000 is discarded. I, II, IIID. You have to complete all course videos, modules, and assessments and receive a minimum score of 75% on each assessment to receive credit. A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. From the basis quote, the dollar price is computed. I CMOs make payments to holders monthlyII CMOs receive the same credit rating as the underlying pass-through securities held in trustIII CMOs are subject to a lower level of prepayment risk than the underlying pass-through certificatesIV CMOs are available in $1,000 denominations, A. II, III, IVB. Unlike regular bonds, where when interest rates rise, prices fall, with an IO, when interest rates rise, prices rise! Quoted as a percent of par in 32nds C. in varying dollar amounts every month C. each tranche has a different credit rating I. 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. Which of the following statements are TRUE regarding CMOs? Treasury Bills, The nominal interest rate on a TIPS approximates the: Conversely, when market interest rates fall, the rate of prepayments rises (prepayment risk) and the maturity shortens. interest payments are exempt from state and local tax Sallie Mae stock does not trade, Sallie Mae is a privatized agency Newer CMOs divide the tranches into PAC tranches and Companion tranches. Thus, the earlier tranches are retired first. 1.4% The CMO is rated dependent on the credit quality of the mortgages underlying mortgage backed pass through securities held in trust II. 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. Prepayment rate IV. A PAC offers protection against both prepayment risk (prepayments go to the Companion class first) and extension risk (later than expected payments are applied to the PAC before payments are made to the Companion class). If a customer buys 5 T-notes on Friday, April 4th in a regular way trade, how many days of accrued interest are owed to he seller? Hence the true statements are: \textbf{Highland Industries Inc.}\\ II. If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. C. $.625 per $1,000 a. Fannie Mae Holders of CMOs receive interest payments: A. monthlyB. Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. the U.S. Treasury issues 13 week T- BillsC. Series EE bonds have no price volatility since they are non-negotiable. The spread between the bid and ask is 2/32nds. III. The last 3 statements are true. I. CMOs are backed by agency pass through securities held in trust \quad\quad\quad\textbf{Stockholders' Equity}\\ As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. If interest rates fall rapidly after the mortgage is issued, prepayment rates speed up; if they rise rapidly after issuance, prepayment rates fall. 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. C. mortgage backed securities issued by a "privatized" government agency 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? Treasury bill prices are falling Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Financial Management, Concise Edition, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. 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. Fannie Mae issues are directly backed by the full faith and credit of the U.S. Government I. "5M" means that the customer is buying $5,000 par value of the notes (M is Latin for $1,000). A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. Thus, the interest rate on a short-term T-Bill is the pure interest rate - the same thing as the risk-free rate of return. 14% Since 1 Basis Point = .01% = $.10, 140 Basis Points = 1.40% = $14.00. I. B. interest payments are subject to state and local tax Because the MBSs are AAA rated, the CMOs created from them are AAA rated as well. Sallie Mae is wholly owned by the U.S. Government through the Federal Reserve System Which statements are TRUE regarding the principal repayments for Companion CMO tranches? does not receive payments. IV. The formula for current yield is: Annual Income = Current YieldMarket Price. D. unrelated to the rate on an equivalent maturity Treasury Bond, less than the rate on an equivalent maturity Treasury Bond, Which statements are TRUE regarding Treasury Inflation Protection securities? **e.** Collin v. Smitb, $1978$. Government bond trades settle next business day; accrued interest is computed on an actual month/actual year basis; and trades settle through the Federal Reserve system in "Fed Funds. Because the principal is being paid back at a later date, the price falls. b. planned securitization alogorithm Targeted amortization classC. Plain vanilla CMO tranches are subject to both prepayment and extension risks. A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. C. Plain Vanilla Tranche treasury bonds c. predicted standardization amortization IV. The annual accretion amount is taxable, since the underlying securities are U.S. $.025 per $1,000B. This is true because prepayments on pass-through certificates are allocated pro-rata. b. Sallie Mae Governments. "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. II. 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? Both securities are money market instruments, Both securities are sold at a discount $$ $81.25 Which of the following statements are TRUE about computerized trading of securities on exchanges? 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. Regarding the Student Loan Marketing Association (Sallie Mae) which of the following statements are TRUE? I. Sallie Mae is a privatized agency Treasury Bonds The Companion class is given a more certain maturity date than the PAC class I Payments are larger in the early yearsII Payments are smaller in the early yearsIII Payments are larger in the later yearsIV Payments are smaller in the later years. A derivative product is one whose value is derived via a formula from an underlying investment. b. taxable in that year as interest income received II. Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). An exception is the interest income received from mortgage backed pass through certificates (issued by GNMA, FNMA, FHLMC). \hline B. less than the rate on an equivalent maturity Treasury Bond 94 Science, 28.10.2019 21:29, nicole8678. 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. Interest income is accreted and taxed annually d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: FNMA is owned by the U.S. Government D. $4,945.00. The securities mature at par, Which of the following are TRUE statements regarding both Treasury Bills and Treasury Receipts? which statements are true about po tranches. II. General Obligation Bonds \textbf{Selected Income Statement Items}\\ II. taxable in that year as long term capital gainsD. The PAC tranche is a Planned Amortization Class. Surrounding this tranche are 1 or 2 Companion tranches. Duration is a measure of bond price volatility. Each tranche has a different yield A. all at once at maturity date of the tranche purchased Conversely, when interest rates fall (prepayment risk) the principal is being paid back at an earlier than expected date, so less interest is being received and the price falls (if interest rates fall drastically, the holder might get less interest back than what was originally invested). For most investors this is too much money to invest, so they buy shares of a Ginnie Mae mutual fund instead. B. each tranche has a different yield Each tranche has a different level of market risk Which CMO tranche is LEAST susceptible to interest rate risk? IV. 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. D. Targeted Amortization Class, Which of the following statements are TRUE when comparing CMO PAC tranches to Companion tranches? \quad\quad\quad\textbf{Assets}\\ Which statements are TRUE regarding CMOs? B. increase prepayment risk to holders of that tranche 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. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. money market funds It acts like a long-term zero-coupon bond, so it is most susceptible to interest rate risk. Treasury Bills 1.4% Which of the following statements are TRUE regarding Treasury Stock? D. U.S. Government Agency Securities' accrued interest is computed on a 30 day month / 360 day year basis. $100B. This makes CMOs more accessible to small investors. Kabuuang mga Sagot: 2 . Real Estate Investment Trusts A floating rate CMO tranche has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR. Newer CMOs divide the tranches into PAC tranches and Companion tranches. CMBs are sold at a regular weekly auction I and IVC. I. are made monthly T-bills are issued in bearer form in the United States holders of "plain vanilla" CMO tranches have higher prepayment risk, Which CMO tranche is most susceptible to interest rate risk? B. b. risk of early prepayment of mortgages if interest rates fall 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. III. $4,914.06 Corporate and municipal bond trades settle in clearing house funds. II. A. C. 10 mortgage backed pass through certificates at par III. d. annually, Which of the following designates "primary" US government securities dealers? Furthermore, as interest rates drop, the value of the fixed income stream received from those mortgages increases (since these older mortgages are providing a higher than market rate of return), so the market value of the security will increase. C. $162.50 \end{array} T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction 4 weeks market value He wants to receive payments over a minimum 10-year investment time horizon. A. Arrange the following CMO tranches from lowest to highest yield: II rated based on the credit quality of the underlying mortgages. I. Companion Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like wild cards - whatever is left over is what you get! (Attachments: # 1 Civil Cover Sheet) (Khoury, Cholla) (Entered: 06/30/2021). \text{Available-for-sale investments, at cost}&\$90,000&\$86,000&\$102,000\\ d. risk of loss of principal if interest rates rise, risks of default if homeowners do not make their mortgage payments, All of the following statements are true about the government national mortgage association pass-through certificates EXCEPT: Their focus is on obtaining deposits that are then used to make mortgages to homeowners. What is the current yield, disregarding commissions? Dealers typically quote agency securities, including Ginnie Maes, on a basis point differential to equivalent maturing U.S. IV. & 2014 & 2015 \\ a. CMO represent a payment of both interest and principal C. certificates are issued in minimum units of $25,000 Companion tranches are the shock absorber tranches, that absorb prepayment risk out of a TAC (Targeted Amortization Class) tranche; or both prepayment risk and extension risk out of a PAC (Planned Amortization Class) tranche. I, II, IIIC. III. Ginnie Mae CertificateC. Interest rate risk, Extended maturity risk On the other hand, extension risk is decreased. a. All of the following statements are true about PAC tranches EXCEPT: A. 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. ( CMOs have the highest investment grade credit ratingsD. 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. But we've saved 90% of the people and identified most of the alien overlords and their centers. C. the trade will settle in Fed Funds STRIPS When compared to plain vanilla CMO tranches, Planned Amortization Classes have: These are funds payable at a registered clearing house, which are usually not good funds for three business days. When the bond matures, the holder receives the higher principal amount. They are auctioned off weekly by the Federal Reserve acting as agent for the U.S. Treasury. A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. 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. Each tranche has a different expected maturity, All of the following statements are true about "plain vanilla" CMO tranches EXCEPT: T-Notes are issued in book entry form with no physical certificates issued Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. actual maturity of the underlying mortgages. These credit ratings agencies really did not understand the complex structure of CDOs and how risky their collateral was (sub-prime mortgage loans that were often no documentation liar loans). Treasury Bills are original issue discount obligations. All of the following statements are true regarding money market funds EXCEPT: A. typical maturities of securities held in the portfolio are 30 days or less B. fund dividends are not taxable if reinvested in additional shares money market funds are typically sold without a sales charge money market funds impose management fees. Which statements are TRUE when comparing Companion CMO tranches to plain vanilla CMO tranches? 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.