which statements are true about po tranches

Treasury Bill The other agencies are only implicitly backed. 19-29 Cash Flows for GNMA IO and PO Primary dealers are expected to bid in weekly Treasury auctions, and must make a secondary market in all U.S. Government issues. Ginnie MaesD. They are the shortest-term U.S. government security, often with maturities as short as 5 days. Thus, the average life of pass-through certificates that represent ownership of that mortgage pool will shorten; as will the average life of CMO tranches which are derived from those certificates (though not to the same extent). All government and agency securities are quoted in 32nds Browse over 1 million classes created by top students, professors, publishers, and experts. A. receives payments prior to all other tranchesB. II. 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. I. in varying dollar amounts every month II. III. D. Treasury Bond. Tranches onward. Interest rate risk, Extended maturity risk A. the same as the rate on an equivalent maturity Treasury Bond I. through a National Securities Clearing Corporation CMOs have the highest investment grade credit ratingsD. C. more than the rate on an equivalent maturity Treasury Bond 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. 0. which statements are true about po tranches \textbf{For the Year Ended December 31, 2013, 2014 and 2015}\\ d. the securities are purchased at par, All of the following are true statements regarding both treasury bills and treasury receipts EXCEPT: If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. receives payments on a pro-rata basis with other tranchesD. Which statements are TRUE regarding Treasury debt instruments? Series EE bonds have no price volatility since they are non-negotiable. A. IV. Which of the following securities has the lowest level of credit risk? C. When interest rates rise, the interest rate on the tranche falls $$ Published in category Business, 04.09.2020 >> "Which statements are TRUE about IO tranches? Treasury Notes Treasury Bonds have minimum maturity of more than 10 years, Which investment does NOT have purchasing power risk? c. 96 Thus, the certificate was priced as a 12 year maturity. If interest rates rise, then homeowners will defer moving at the anticipated rate, since they have a good deal with their existing mortgage. C. Treasury Bonds Conventional Treasury Bonds are subject to this risk, since interest payments are received semi-annually. Treasury bondB. 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. D. loan to value ratio. T-Notes are sold by negotiated offering This is a tranche that only receives the principal payments from an underlying mortgage, and it is created with a corresponding IO (Interest Only) tranch that only receives the interest payments from that mortgage. PACs protect against extension risk, by shifting this risk to an associated Companion tranche. 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). Thus, the PAC class is given a more certain maturity date and hence lower prepayment risk; while the Companion classes have a higher level of prepayment risk if interest rates drop; and they have a higher level of so-called extension risk - the risk that the maturity may be longer than expected, if interest rates rise. c. risks of default if homeowners do not make their mortgage payments Which of the following statements are TRUE about CMOs? B. federal funds rate This is true because prepayments on pass-through certificates are allocated pro-rata. $25 per $1,000. 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. principal amount is adjusted to $1,050 C. mortgage backed securities issued by a "privatized" government agency I, II, IVC. III. D. 1400%. d. annually, Which of the following designates "primary" US government securities dealers? Treasury "TIPS" are Treasury Inflation Protection Securities - the principal amount of these securities is adjusted upwards with the rate of inflation. B. U.S. Government Agency bonds 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. Interest is paid after all other tranches Thus, PACs have lower prepayment risk than plain vanilla CMO tranches. III. I. Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. II. CMOs take the payment flow from the underlying pass-through certificates and allocate them to so-called tranches. A CMO backed by 30 year mortgages might be divided into 15-30 separate tranches. The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. The spread is: Question 6 You bought a CMO tranche that does not receive any cash flows until all other tranches have been repaid and whose principal grows at a predetermined rate each period. A. corporation or trust through which investors pool their money in order to obtain diversification and professional management Ginnie Mae Pass-Through certificates are U.S. Government guaranteed, so trades settle in Fed Funds. The Companion class is given a more certain maturity date than the PAC class III. I. Fannie Mae is a publicly traded company Principal only strips are. IV. When interest rates rise, the interest rate on the tranche falls. 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. Each tranche has a different yield There is usually a cap on how high the rate can go and a floor on how low the rate can drop. 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)? Treasury Bills are typically issued for which of the following maturities? The CMO is backed by mortgage backed securities created by a bank-issuer 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? Treasury BillB. Although controversial and the subject of recent lawsuits (e.g., Satchell et al. Its price moves just like a conventional long term deep discount bond. GNMA Pass-Through Certificates. 26 weeks They are sold in $100 minimums at a discount to par value, just like Treasury Bills. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? Thrift institutions are not permitted to be primary dealers. C. Industrial Revenue Bond Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded Interest received by the holder of a mortgage backed pass through security is fully taxable by both federal, state, and local government. d. TIPS, If the principal amount of a treasury inflation protection security is adjusted upwards due to inflation, the adjustment amount is: Fannie Mae issues are not directly backed by the full faith and credit of the U.S. Government, All of the following statements describe Freddie Mac EXCEPT: T-Notes are issued in book entry form with no physical certificates issued D. no prepayment risk. Which of the following trade "flat" ? Ginnie Mae CertificateC. These are issued at a deep discount to face. Which of the following is an example of a derivative product? All of the following would be considered examples of derivative products EXCEPT: Thus, the certificate was priced as a 12 year maturity. Federal income tax onlyB. 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. If interest rates drop, the market value of the CMO tranches will increase I. Ginnie Mae bonds are traded Over the Counter, The "modification" of Ginnie Mae modified pass through certificates is: holders of "plain vanilla" CMO tranches have lower prepayment risk The current yield of the Treasury Bond is: Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? Which statements are TRUE when comparing Companion CMO tranches to plain vanilla CMO tranches? Unlike U.S. The PAC class has a lower level of prepayment risk than the Companion class IV. Only mortgage backed pass-through certificates are used as the backing for CMOs - and Ginnie Mae (Government National Mortgage Assn. The longer the maturity, the greater the price volatility of a negotiable debt instrument. Collateralized mortgage obligations may be backed by all of the following securities EXCEPT: Since interest is paid semi-annually, each payment will be for $81.25. Governments. Commercial banks The best answer is C. The bond is quoted at 95 and 24/32nds. A. D. GNMA Pass Through Certificates. Governments. D. according to the amortization schedule of the underlying mortgages. a. interest accrues on an actual day month; actual day year basis 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. When compared to plain vanilla CMO tranches, Planned Amortization Classes have: 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. C. Plain Vanilla Tranche Newer CMOs divide the tranches into PAC tranches and Companion tranches. C. Treasury Bonds III. $$ Which statements are TRUE regarding Treasury debt instruments? 8 Q d. Congress, All of the following are true statements about treasury bills EXCEPT: marketability risk Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. Targeted Amortization Class. holders of "plain vanilla" CMO tranches have higher prepayment risk, Which CMO tranche is most susceptible to interest rate risk? A. Home . which statements are true about po tranches. Collateralized mortgage obligations are backed by mortgage pass-through certificates that are held in trust. Credit Rating. CMOs are Collateralized Mortgage Obligations. III. 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). If prepayment rates rise, the PAC tranche will receive its sinking fund payment after its companion tranchesC. taxable in that year as interest income receivedC. C. In periods of inflation, the principal amount received at maturity will be par 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. Accrued interest on the certificates is computed on a 30 day month / 360 day year basis, All of the following statements are true regarding GNMA "Pass Through" Certificates EXCEPT: Which statements are TRUE about PO tranches? D. $6.25 per $1,000. A. D. $5,000, A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. Which of the following statements are TRUE regarding CMOs? Which statements are TRUE about IO tranches? Therefore, as interest rates move up, the interest rate paid on the tranche goes up as well; and when interest rates drop, the interest rate paid on the tranche goes down as well. Corporate and municipal bond trades settle in clearing house funds. B. interest payments are subject to state and local tax D. expected interest rate, The nominal interest rate on a TIPS is: A derivative product is one whose value is derived via a formula from an underlying investment. Treasury Bonds \end{array} are made monthly If prepayments increase, they are made to the Companion class first. 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). 4 weeks 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. A. III. A. discount rate B. lower prepayment risk Today 07:16 D. $325.00. Plain vanilla CMO tranches are subject to both risks, while zero-tranches are like "wild cards" - whatever is left over is what you get! Planned amortization classD. Agency CMOs carry the direct or implied guarantee of the U.S. Government while Private Label CMOs do not have such a guarantee Trading is confined to the primary dealers General Obligation Bonds Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security. $4,914.06 ** New York Times v. United States, $1974$ Note that this is different than the typical minimum $1,000 par amount for other debt issues. 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. The note pays interest on Jan 1 and Jul 1. The spread is: A. Salesforce 401 Dev Certification Questions Answers Part 1. T-bills are issued at a discount, T-bills are registered in the owner's name in book entry form The CDO market boomed until 2007 and then crashed and burned with the housing collapse of 2008-2009, when CDO holders discovered that their supposedly "lower risk" tranches defaulted. CMOs are subject to a lower degree of prepayment risk than the underlying pass-through certificates. Which of the following statements are TRUE when comparing the Planned Amortization Classes (PAC tranches) to the Companion Classes of a CMO? 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. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. Treasury STRIPS are not suitable investments for individuals seeking current income holders of "plain vanilla" CMO tranches have higher prepayment risk, holders of PAC CMO tranches have lower prepayment risk Which statement is TRUE about PO tranches? Planned Amortization Class T-Notes are sold by competitive bidding at auction conducted by the Federal Reserve \text{Valuation allowance for available-for-sale investments}&12,000&(11,000)&h.\\ **c.** United States v. Nixon, $1974$ The CMO takes on the credit rating of the underlying collateral. 2/32nds = .0625% of $1,000 par = $.625. $35.00 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. 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. FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation What is NOT a risk of investing in a GNMA? The underlying securities are backed by the full faith and credit of the U.S. Government Ch.2 - *Quiz 2. Thus, payments are received monthly. D. Any of the above. 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. Thus, CMOs give holders a form of call protection not available in regular pass-through certificates. CDOs - Collateralized Debt Obligations - are structured products that invest in CMO tranches (and they can also invest in other debt obligations that provide cash flows). B. Non- deliverable forwards and contracts for differences have distinct settlement procedures. 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). C. A TAC is a variant of a PAC that has a higher degree of extension risk The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. Do not confuse this with the "average life" of the mortgages in the pool that backs the CMO. C. security which is backed by real property and/or a lien on real estate \textbf{Highland Industries Inc.}\\ IV. Both securities are sold at a discount Treasury STRIPS are quoted on a yield to maturity basis, Treasury Bills are quoted on a yield to maturity basis I. pension funds B. a dollar price quoted to a 5.00 basis Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. ), Fannie Mae (Federal National Mortgage Assn. c. STRIPS I, II, III, IV. Treasury billD. When the bond matures, the holder receives the higher principal amount. I. Sallie Mae is a privatized agency which statements are true about po tranches 16 .. Both PACs and TACs offer the same degree of protection against extension riskB. C. each tranche has a different credit rating A Treasury Bond is quoted at 95-24. When interest rates rise, the price of the tranche fallsC. Also note that even though Standard and Poors downgraded Treasury Debt to an AA+ rating in the summer of 2011, Moodys and Fitchs retained their AAA ratings. Holders of CMOs receive interest payments: A. interest accrues on an actual day month; actual day year basis III. III. Sallie Mae stock is listed and trades 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? Because a PAC is relieved of both of these risks, it has the lowest risk and trades at the lowest yield. 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. All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? Treasury Bills Thus, the rate of principal repayments varies, depending on market interest rate movements. Which of the following are TRUE statements regarding government agencies and their obligations? D. Reinvestment risk for GNMAs is the same as for equivalent maturity U.S. Government Bonds. III. The Federal Reserve would permit which of the following to be "primary" U.S. Government securities dealers? c. T-bills have a maximum maturity of 9 months A. U.S. Government bonds through the Federal Reserve System An official statement issued by the finance ministry said the estimated shortfall of 1.1 trillion, assuming all states opt for borrowing, will be borrowed by central government in tranches and passed on to states "as a back-to-back loan in lieu of GST Compensation cess releases." A government securities dealer quotes a 3 month Treasury Bill at 5.00 Bid - 4.90 Ask. a. the full faith and credit of the US governments backs the securities underlying the issue PAC tranche holders have lower prepayment risk than companion tranche holdersD. 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. Thus, the prepayment rate for CMO holders will increase. A "derivative" product is one whose value is "derived" via a "formula" from an underlying investment. I and IVC. IV. prepayment speed assumptionC. $2.50 per $1,000D. IV. FNMA is owned by the U.S. Government Fannie Maes. III and IV onlyC. 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. Freddie Mac - Federal Home Loan Mortgage Corporation - buys conventional mortgages from financial institutions and packages them into pass through certificates. Ginnie Mae stock is traded on the New York Stock Exchange Treasury STRIPS are quoted in 32nds, Which characteristic is NOT common to both Treasury STRIPS and Treasury Notes? 14% What is not eliminated, however, is credit risk. A. zero coupon bond Treasury Receipts, All of the following are true statements about U.S. Government Agency securities EXCEPT: which statements are true about po tranches. 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. B. The rate of return on the bonds is "locked in" at purchase since the discount represents the compounded yield to be earned over the life of the bond. If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. A. reduce prepayment risk to holders of that tranche 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. A. each tranche has a different maturity A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. \textbf{For the Year Ended December 31, 2014 and 2015}\\ D. derivative product. All of the tranches are issued on the same date; but the maturities extend over a sequence of years. I, II, IIIC. A. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. III. Interest earned is subject to reinvestment risk The bonds are issued at a discount Interest income is accreted and taxed annually II. interest payments are exempt from state and local tax The certificates are quoted on a percentage of par basis CMOs have a lower level of market risk (risk of price volatility due to movements in market interest rates) than do mortgage backed pass-through certificates. Since semi-annual interest payments are not received, there is no reinvestment risk. IV. Real Estate Investment TrustD. T-Bills are the most actively traded money market instrument, T-Bills can be purchased directly at weekly auction IV. Each tranche has a different level of market risk c. the trade will settle in Fed Funds 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. Treasury Bills d. have the same prepayment risk as companion classes, reduce prepayment risk to holders of that tranche, Which statements are TRUE when comparing PAC CMO tranches to "plain vanilla" CMO tranches? a. Fannie Mae It is primarily associated as a tranche of a collateralized mortgage obligation (CMO), which also. Mortgage backed pass-through certificates are paid off in a shorter time frame than the full life of the underlying mortgages. In periods of inflation, the amount of each interest payment will increase A. equity security IV. C. Municipal bonds I. the trading market is very active, with narrow spreads C. 10 mortgage backed pass through certificates at par Standard deviation is a measure of the risk based on the expected variation of return on investment. IV. 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. The process of separating the principal and interest on a debt obligation is known as stripping. II. A $1,000 par Treasury Note is quoted at 100-1 - 100-9. 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. 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? on the same day as trade date a. prepayment speed assumption If interest rates rise, then the expected maturity will lengthen expected life of the tranche But we've saved 90% of the people and identified most of the alien overlords and their centers. T-Notes are issued in bearer form. Targeted Amortization ClassC. An annual upward adjustment due to inflation is taxable in that year; an annual downward adjustment due to deflation is tax deductible in that year.C. Freddie Mac pass through certificates are not guaranteed by the U.S. Government (unlike GNMA pass through certificates). A. term structures CMBs are sold at a regular weekly auction If interest rates fall, then the expected maturity will shorten, due to a higher prepayment rate than expected. I. Because of the sequencing of principal repayments from the underlying mortgages, the holder has a more definite maturity date on the issue, as compared to actually buying a mortgage backed pass-through certificate. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? holders of PAC CMO trances have higher prepayment risk

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