which statements are true about po tranches

$$ These are funds payable at a registered clearing house, which are usually not good funds for three business days. I. If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. Ginnie Mae is backed by the guarantee of the U.S. Government, making it the highest credit rated agency security. CMOs give the holder a limited form of call protection that is not present in regular pass-through obligations, "PSA" stands for: If interest rates start dropping, homeowners refinance and prepay their mortgages, and these prepayments are passed-through to pay off the tranches. Interest payments are still made pro-rata to all tranches (like plain vanilla CMOs), but principal repayments made earlier than that required to retire the PAC at its maturity are applied to the Companion class; while principal repayments made later than expected are applied to the PAC maturity before payments are made to the Companion class. c. the trade will settle in Fed Funds Foreign broker-dealers Thus, the earlier tranches are retired first. T-Notes are issued in book entry form with no physical certificates issued $$ The last 3 statements are true. There is usually a cap on how high the rate can go and a floor on how low the rate can drop. The Companion class is given a more certain maturity date than the PAC class 95 What is the current yield, disregarding commissions? During periods of falling interest rates, prepayments of mortgages in a pool are applied pro-rata to all holders of pass-through certificates. III. 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. Surrounding this tranche are 1 or 2 Companion tranches. B. Non-callable funded debtC. Foreign broker-dealers Therefore, both PACs and TACs provide call protection against prepayments during period of falling interest rates. T-Bills have a maximum maturity of 2 years A customer has heard about the explosive growth in China and wants to make . holders of "plain vanilla" CMO tranches have higher prepayment risk, holders of PAC CMO tranches have lower prepayment risk Since ETCs are secured by rolling stock, they are safer than Industrial revenue bonds, which are backed by lease payments made by a corporate lessee and the guarantee of that lessee. b. interest payments are exempt from state and local taxes Which statements are TRUE about PO tranches? vs. FedEx Express), some human resource departments administer standard IQ tests to all employees. IV. III. If the corporate lessee were to default; and then declare bankruptcy, the IRB holders would be left with worthless paper. However, if prepayment rates slow, the TAC absorbs the available cash flow, and goes in arrears for the balance. 13 weeks CMOs have investment grade credit ratings B. Treasury Receipts, All of the following are true statements about U.S. Government Agency securities EXCEPT: All of them A customer buys 1 note at the ask price. III. The CMO purchaser buys a specific tranche. \hline \text { Operating income } & \text { } & \text { } \\ Which statement is TRUE? The Treasury does not issue 1 week T-Bills. 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. All of the following statements are true regarding this trade of T-notes EXCEPT: 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. Treasury bond 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. He wants to receive payments over a minimum 10-year investment time horizon. d. Congress, All of the following are true statements about treasury bills EXCEPT: Planned Amortization ClassB. "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. REITs are common stock companies that make direct investments in real estate. III. 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). Determine the missing lettered items. treasury bonds Thus, the certificate was priced as a 12 year maturity. All of the following statements are true about Treasury Bills EXCEPT: A. the U.S. Treasury issues 1 week T- BillsB. A. the certificates are quoted on a percentage of par basis in 32nds II. A customer buys 5M of the notes. Treasury bill lower extension riskC. Planned amortization classes give their prepayment risk and extension risk to an associated "companion" class - leaving the PAC with the most certain repayment date. Money market instrumentB. You have to complete all course videos, modules, and assessments and receive a minimum score of 75% on each assessment to receive credit. ), and Freddie Mac (Federal Home Loan Mortgage Corp.) all issue pass-throughs. A newer version of a CMO has a more sophisticated scheme for allocating cash flows. If prepayments increase, they are made to the Companion class first. f(x)=4 ; x=0 A. represent a payment of both interest and principal A. b. monthly 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. A. 2/32nds = .0625% of $1,000 par = $.625. 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? When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. 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. I and IVC. The note pays interest on Jan 1 and Jul 1. Interest is paid semi-annually Test 1z0-1085-20-1 - DAYPO A. term structures 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. C. discount bond Domestic broker-dealers \end{array} A. Thus, the certificate was priced as a 12 year maturity. Treasury STRIPS are quoted in 32nds, Which characteristic is NOT common to both Treasury STRIPS and Treasury Notes? IV. B. The interest received from a Collateralized Mortgage Obligation is subject to: A. In periods of deflation, the principal amount received at maturity is unchanged at par, In periods of deflation, the amount of each interest payment will decline The spread between the bid and ask is 8/32nds. Therefore, an 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 down as well. III. The note pays interest on Jan 1st and Jul 1st. Governments. Sallie Mae is wholly owned by the U.S. Government Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Financial Management, Concise Edition, Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. I Trades bypass the floor broker II Trades can be effected more efficiently and at lower cost III Orders can be accepted up to certain size limits IV Orders can be executed at faster speed I, II, III, and IV All of the following are true statements regarding revenue bonds EXCEPT: A) issuance of the bonds is dependent on earnings requirements. are stableD. I. A. average life of the tranche Treasury bill prices are falling PAC tranches increase prepayment risk to holders of that tranche a. T-bills are traded at a discount from par Sallie Mae issues debentures, and uses the funds to make a secondary market, buying student loans from originating lenders (Sallie Mae stands for Student Loan Marketing Association). II. B. IV. FHLB, A collateralized mortgage obligation is best defined as a(n): 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: B. The spread between the bid and ask is 2/32nds. D. according to the amortization schedule of the underlying mortgages. 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. C. certificates trade "and interest" The best answer is C. A PO is a Principal Only tranche. PACs protect against extension risk, by shifting this risk to an associated Companion tranche. D. Freddie Mac debt issues are directly guaranteed by the U.S. Government. a. Fannie Mae These represent a payment of both interest and principal on the underlying mortgages. They are auctioned off weekly by the Federal Reserve acting as agent for the U.S. Treasury. Plain Vanilla TrancheD. Equipment Trust Certificate I. T-Notes are issued in bearer form. B. interest payments are subject to state and local tax A. FNMA is a publicly traded company D. When interest rates rise, the interest rate on the tranche rises, When interest rates rise, the price of the tranche falls, Which statement is TRUE about IO tranches? D. combined serial and series structures. ** New York Times v. United States, $1974$ Treasury Bills The note pays interest on Jan 1 and Jul 1. d. CAB, Which treasury security is NOT sold on a regular auction schedule? Federal Farm Credit Funding Corporation Note. A. Treasury STRIPS are not suitable investments for individuals seeking current income . D. Treasury Receipts. 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. They are sold in $100 minimums at a discount to par value, just like Treasury Bills. Treasury STRIPD. 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. TACs are like a one-sided PAC - they protect against prepayment risk, but not against extension risk. Treasury Notes The holder of a specific tranche of a CMO will only receive prepayments after all earlier tranche holders are repaid. I, II, III, IV. a. Z-tranche These are issued at a discount to face and each interest payment made brings the "notional principal" of the bond closer to par. Arrange the following CMO tranches from lowest to highest yield: II rated based on the credit quality of the underlying mortgages. 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. Their focus is on obtaining deposits that are then used to make mortgages to homeowners. Interest Only (IO) Strips: Definition and How They Work - Investopedia Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche. B. Fully depreciated equipment costing $50,000 is discarded. 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? Principal repayments made later than expected are applied to the PAC prior to being applied to the Companion tranche C. A TAC is a variant of a PAC that has a higher degree of extension risk There is little reinvestment risk with U.S. Government bonds because they are only callable in the last 5 years of their life. A riskless security maturing in 52 weeks or less is a: A. IV. C. in varying dollar amounts every month Newer CMOs divide the tranches into PAC tranches and Companion tranches. A 5-year, $1,000 par, 3 1/2% Treasury note is quoted at 101-4 - 101-8. I When interest rates rise, maturities will lengthenII When interest rates fall, maturities will shortenIII When interest rates rise, holders are subject to prepayment riskIV When interest rates fall, holders are subject to extension risk. A Targeted Amortization Class (TAC) is a variant of a PAC. are made monthly b. A TAC bond is designed to pay a target amount of principal each month. Sallie Mae stock is listed and trades II. 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}\\ PAC tranche holders have lower prepayment risk than companion tranche holdersD. Targeted amortization classC. which statements are true about po tranches 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. IV. Thus, there is no purchasing power risk with these securities. 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 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. The interest earned from which of the following is exempt from state and local tax? 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. D. Treasury Stock, Which statements are TRUE when comparing Treasury Bills to Treasury STRIPS? Which of the following statements are TRUE about PAC tranches PAC tranche holders have lower prepayment risk than companion tranche holders PAC tranche holders have lower extension risk than companion tranche holders If prepayment rates slow down, the PAC tranche will receive its sinking fund payment prior to its companion tranches An annual upward adjustment due to inflation is not taxable in that year; an annual downward adjustment due to deflation is tax deductible in that year. State income tax onlyC. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. which statements are true about po tranches \text { Gain (loss) from sale of investments } & \$ 7,500 & \$(12,000) \\ 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. c. STRIPS REG - Riverstone Energy Ld - Annual Report and Financial Statements 2022. IV. Which statements are TRUE regarding treasury STRIPS? Which statements are TRUE about PO tranches? Which CMO tranche will be offered at the lowest yield? Treasury Receipts represent an undivided interest in a portfolio of U.S. Government securities held by a trustee. 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. 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 Paraconformity Geology, Articles W