IV. IV. The note pays interest on Jan 1 and Jul 1. I. Treasury NoteC. $35.00 c. Office of the Comptroller of Currency B. (Attachments: # 1 Civil Cover Sheet) (Khoury, Cholla) (Entered: 06/30/2021). 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. I The investor locks in a rate of return that is free from reinvestment risk if the Receipt is held to maturityII The underlying bonds are held by a trustee for the beneficial ownersIII The interest income on the Receipts is subject to Federal income tax annuallyIV The Receipts are issued by broker-dealers, who maintain a secondary market in these securities, A. III and IV onlyB. C. Plain Vanilla Tranche Conventional Treasury Bonds are subject to this risk, since interest payments are received semi-annually. Newer CMOs divide the tranches into PAC tranches and Companion tranches. For the exam, these securities are still rated AAA. 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. The price movements of IOs are counterintuitive! Which statement is TRUE? Principal only strips are. 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. When interest rates rise, the price of the tranche rises These trades are settled through NSCC - the National Securities Clearing Corporation. Selected income statement items for the years ended December 31, 2014 and 2015, plus selected items from comparative balance sheets, are as follows: II. B. The note pays interest on Jan 1st and Jul 1st. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. When interest rates rise, the price of the tranche rises A. the pooling of mortgages of similar maturities to back the security D. yearly, Wide swings in market interest rates would affect which of the following for holders of collateralized mortgage obligations? . b. taxable in that year as interest income received IV. They do have purchasing power risk (the risk of inflation eroding real returns), but this is only an issue for long-term maturities. FNMA is owned by the U.S. Government d. the securities are purchased at par, All of the following are true statements regarding both treasury bills and treasury receipts EXCEPT: 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. I. Because these T-Notes are trading at a premium, the yield to maturity will be lower than the current yield. ( The interest received from a Collateralized Mortgage Obligation is subject to: A. A. Principal repayments made earlier than expected are applied to the PAC prior to being applied to the Companion tranche Surrounding this tranche are 1 or 2 Companion tranches. c. treasury bonds When compared to plain vanilla CMO tranches, Planned Amortization Classes have: Which of the following securities has the lowest level of credit risk? Tranches are groups of securities of a firm in which investors invest. Treasury Bills are typically issued for which of the following maturities? B. the yield to maturity will be higher than the current yield Both PACs and TACs offer the same degree of protection against extension riskB. The PAC class is given a more certain maturity date than the Companion class taxable at maturity. a. III. 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 Notes are issued in book entry form only. Fannie Mae debt securities are negotiable, When comparing the debt issues of Ginnie Mae to Fannie Mae, which statements are TRUE? Which statements are TRUE regarding Z-tranches? A customer buys 5M of the notes. D. In periods of deflation, the principal amount received at maturity is unchanged at par, In periods of deflation, the principal amount received at maturity will decline below par, Which of the following statements about Treasury STRIPS are TRUE? For example, there may be 10 tranches in the pool, with the first tranche having an expected life of 1-2 years, the second tranche having an expected life of 3-5 years, the third tranche having an expected life of 5-7 years, etc. 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. D. Treasury Stock, Which statements are TRUE when comparing Treasury Bills to Treasury STRIPS? Fannie Mae debt securities are non-negotiable, Fannie Mae is a publicly traded company II. I. Fannie Mae is a publicly traded company Thus, the earlier tranches are retired first. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations Users should NOT be allowed to delete review records after job application records have been approved. \end{array} on the business day after trade date, A customer buys 5M of 3 1/4% Treasury Bonds at 98-8. 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 Quoted as a percent of par in 32nds a. Fannie Mae II. 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. Private CMOs (Collateralized Mortgage Obligations) are also called private label CMOs. 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. II. 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. IV. Treasury BillB. Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security. I. FNMA is a publicly traded corporation IV. Treasury STRIPS are quoted in 32nds rated based on the credit quality of the underlying mortgages PAC tranches reduce prepayment risk to holders of that tranche Because the principal is being paid back at an earlier date, the price rises. a. Z-tranche Why? b. Sallie Mae Targeted amortization classC. a. interest is paid at maturity **c.** United States v. Nixon, $1974$ Real Estate Investment TrustD. A companion tranche is a class, or type, of tranche, which is a portion of a debt or security. III. Companion ClassD. 2 mortgage backed pass through certificates at par 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. 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. STRIPS I. A. If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. I, II, III, IV. IV. 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? C. each tranche has a different credit rating IV. Extended maturity risk 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. The PAC, which is relieved of these risks, is given the most certain repayment date. Once the Treasury started issuing STRIPS in 1986, there was no need for the middleman anymore. I, II, IVC. All government and agency securities are quoted in 32nds a. the full faith and credit of the US governments backs the securities underlying the issue The note pays interest on Jan 1 and Jul 1. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. Interest is paid after all other tranches Therefore, both PACs and TACs provide call protection against prepayments during period of falling interest rates. A Z-tranch is a zero tranche that receives no payments, either interest or principal, until all other tranches before it are paid off. Note, however, that the "PSA" can change over time. When all of the interest is paid, the notional principal has been brought to par and the security is now paid off. marketability risk Mortgage backed pass-through certificates are "paid off" in a shorter time frame than the full life of the underlying mortgages. Homeowners will prepay mortgages when interest rates fall, so they can refinance at more attractive lower current rates. 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. c. 95 When this interest is received by the certificate holder, both the federal and state government want to recapture this interest income and tax it. Science, 28.10.2019 21:29, nicole8678. Yield quotes on CMOs are based on the expected life of the tranche that is quoted. A CMO divides the cash flow from a pool of underlying mortgages into a number of tranches, each with a different maturity. III. III. purchasing power risk Collateral trust certificate. Which of the following statements are true? FNMA pass through certificates are not guaranteed by the U.S. Government, FNMA is a publicly traded corporation Ginnie Mae is a U.S. Government Agency 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. Series EE bonds have no price volatility since they are non-negotiable. II. A mortgage backed security that is backed by an underlying pool of 30 year mortgages has an expected life of 10 years. \text{Available-for-sale investments, at cost}&\$90,000&\$86,000&\$102,000\\ However, T-Receipts still trade until they all mature. CMOs are available in $1,000 denominations, as opposed to pass-through certificates that are $25,000 denominations. treasury notes Local income tax onlyD. A TAC is a variant of a PAC that has a higher degree of extension risk When interest rates fall, homeowners do refinance their mortgages, and the prepayment rate will be higher than expected. A Targeted Amortization Class (TAC) is a variant of a PAC. An IO is an Interest 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. D. the setting of a fixed interest rate for the pool of mortgages backing the security, A pass through certificate is best described as a: If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. Which statements are TRUE about CMO Targeted Amortization Class (TAC) tranches? D. Treasury Bond. When interest rates rise, the price of the tranche falls I. A. term structures A Treasury Bond is quoted at 95-24. Treasury NotesC. Collateral trust certificates are directly issued by corporations - these are not derivative investments. 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. 24/32nds = .75, so the bond is quoted at 95.75% of $1,000 par value = $957.50. b. It acts like a long-term zero-coupon bond, so it is most susceptible to interest rate risk. This makes CMOs more accessible to small investors. how to ultimate male vitamin; sildenafil (viagra) dick enlargment surgery; how to healthy natural lubricants; which drug for erectile dysfunction definition cialis Governments. 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. 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 CertificateC. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. 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). Ginnie Mae obligations trade at higher yields than Fannie Mae obligations If interest rates fall, then the expected maturity will lengthen 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. 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. serial structures Which of the following statements are TRUE about computerized trading of securities on exchanges? a. CMOs are available in $1,000 denominations 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 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). II. Interest income is accreted and taxed annually, US Treasury securities are considered subject to which of the following risks? II. A. 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. No certificates are issued for book entry securities; the only ownership record is the "book" of owners kept by the transfer agent. A. D. $325.00. 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. D. have the same prepayment risk as companion classes. b. treasury bills 13 weeks A. private placements offered under Regulation D Both securities pay interest at maturity, The physical securities which are the underlying collateral for Treasury Receipts are: 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 statements are TRUE about PO tranches? c. taxable in that year as long term capital gains II. Principal repayments made earlier than that required (earlier than expected) 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. c. T-bills have a maximum maturity of 9 months C. A TAC is a variant of a PAC that has a higher degree of extension risk III. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A government bond dealer is making good delivery to another government dealer. $$, Which of the following court decisions restricted the ability of public officials to sue the press for libel? III. If the principal amount of a Treasury Inflation Protection Security is adjusted upwards due to inflation, the adjustment amount is taxable in that year as ordinary interest income. 2 mortgage backed pass through certificates at par $81.25 C. eliminate prepayment risk to holders of that tranche The customer buys the bonds at 101 and 8/32s = 101.25% of $1,000 = $1,012.50. D. CMBs are direct obligations of the U.S. government. PAC tranche holders have lower prepayment risk than companion tranche holdersD. $$ II. The best answer is C. The bond is quoted at 95 and 24/32nds. Today 07:16 Which statements are TRUE about PO tranches? Because interest will now be paid for a longer than expected period, the price rises. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. Thus, because the PAC has lowered prepayment and extension risk, its yield will be lower than the surrounding Companion classes. IV. 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. B. in constant dollar amounts every month Bond classes can be categorised as senior tranches or subordinated (junior) tranches. Principal repayments on a CMO are made: CMOs are available in $1,000 denominations. d. 96, A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. 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. Thus, prepayments are applied to earlier tranches first, so the actual date of repayment of the tranche is known with more certainty. A customer buys 1 note at the ask price. Determine the missing lettered items. Which statement is FALSE regarding Treasury Inflation Protection securities? III. C. FNMA Pass Through Certificates 1 / 39 The best answer is B. ETNs are "Exchange Traded Notes." They are an equity index linked structured product, that is listed and trades on an exchange. which statements are true about po tranches. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? 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 Ginnie's underwriting standards). A. $.025 per $1,000B. A. monthly The service limit is a quota set on a resource. Its price moves just like a conventional long term deep discount bond. If Treasury bill yields are dropping at auction, this indicates that: reduce prepayment risk to holders of that tranche III. A TAC is a variant of a PAC that has a lower degree of prepayment risk The safest bonds listed are Treasury bonds (backed by the U.S. Government) and General obligation bonds (backed by unlimited municipal taxing power).