which statements are true about po tranches

Therefore, both PACs and TACs provide call protection against prepayments during period of falling interest rates. Certain CMO tranches may represent a right to receive interest only ("IOs"), principal only ("POs") or an amount that remains after floating-rate tranches are paid (an "inverse floater"). The interest on these securities is subject to both Federal and State and Local income tax; hence CMOs are taxed in the same manner. These trades are settled through GSCC - the Government Securities Clearing Corporation. C. the trade will settle in Fed Funds FHLMC Holders of CMOs receive interest payments: A. monthlyB. When comparing the effect of changing interest rates on prices of a CMO issues versus the prices of regular bond issues, which of the following statements are TRUE? Thus, the certificate was priced as a 12 year maturity. cannot be backed by sub-prime mortgages. D. $4,945.00. Browse over 1 million classes created by top students, professors, publishers, and experts. Domestic broker-dealers Payment is to be made in: Which is considered to be a direct obligation of the US government? Users should NOT be allowed to delete review records after job application records have been approved. Targeted Amortization ClassC. 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. U.S. Government debt is sold via competitive bidding at a weekly auction conducted by the Federal Reserve. A TAC is a variant of a PAC that has a higher degree of extension risk The formula for current yield is: Annual Income = Current YieldMarket Price. CMO "Planned Amortization Classes" (PAC tranches): c. 95 Fannie Mae issues are not directly backed by the full faith and credit of the U.S. Government, Ginnie Mae issues are directly backed by the full faith and credit of the U.S. Government B. prepayment speed assumption A. collateral trust certificateB. \text{Valuation allowance for available-for-sale investments}&12,000&(11,000)&h.\\ II. Which statements are TRUE regarding Z-tranches? a. treasury bills IV. The service limit is set by administrators to allow users to use the required resources. II. Which statement is TRUE about IO tranches? II. abbreviation for Collateralized Debt Obligation, this is a structured product that invests in CMO tranches and was used to create tranches based on underlying sub-prime mortgages. c. certificates are issued in minimum units of $25,000 IV. Which Collateralized Mortgage Obligation tranche has the MOST certain repayment date? If interest rates are rising rapidly, which U.S. Government debt prices would be MOST volatile? A. Which statements are TRUE about private CMOs? Thus, payments are received monthly. The minimum denomination on a Treasury Bill is $100 maturity amount. Because the principal is being paid back at an earlier date, the price rises. B. CMO issues have the same market risk as regular pass-through certificates. A Targeted Amortization Class (TAC) is a variant of a PAC. are made semi-annually 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. A. I. PAC tranches reduce prepayment risk to holders of that tranche PAC tranche holders have higher extension risk than companion tranche holders. Treasury STRIPS are not suitable investments for individuals seeking current income D. Treasury Bond. b. treasury bills when interest rates fall, prepayment rates rise, CMO "planned amortized classes" (PAC tranches): When the bond matures, the holder receives the higher principal amount. (It is not a leap year). If prepayments increase, they are made to the Companion class first. Treasury Receipts, Treasury Bills Which statements are TRUE regarding Treasury debt instruments? **c.** United States v. Nixon, $1974$ The interest portion of a fixed rate mortgage makes larger payments in the early years, and smaller payments in the later years. A customer will buy at the ask price, which is 98 and 9/32nds = 98.28125% of $5,000 par = $4,914.06. 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. Trades of which of the following securities will settle in Fed Funds? Collateralized mortgage obligations may be backed by all of the following securities EXCEPT: Planned amortization classes give their prepayment risk and extension risk to an associated companion class - leaving the PAC with the most certain repayment date. I. These are also not a derivative product. II. d. Savings (EE) bonds, All of the following agencies provide financing for residential housing EXCEPT: A. Agency obligations have the direct backing of the US government which statements are true about po tranches. Ginnie Mae obligations trade at higher yields than Fannie Mae obligations receives payments after all other tranchesC. The current yield does not factor in the loss of the premium over the life of the bond, whereas yield to maturity does. B. a. reduce prepayment risk to holders of that tranche 1.4% PAC tranche holders have lower prepayment risk than companion tranche holdersD. The best answer is C. A PO is a Principal Only tranche. Which of the following statements are TRUE when comparing the Planned Amortization Classes (PAC tranches) to the Companion Classes of a CMO? D. have the same prepayment risk as companion classes. C. series structures I. Which CMO tranche is LEAST susceptible to interest rate risk? The minimum denomination on Treasury Notes and Bonds is also $100 maturity amount. B. II. A derivative product is one whose value is derived via a formula from an underlying investment. III. Thus, the earlier tranches are retired first. If interest rates rise, then the expected maturity will lengthen Mortgage backed pass-through certificates are "paid off" in a shorter time frame than the full life of the underlying mortgages. B. D. Treasury Receipts. 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. 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. Most CMOs make payments to holders monthly; though there are some issues that pay quarterly or semi-annually. Treasury Notes are issued in book entry form only. If the mortgages backing a Ginnie Mae Pass Through Certificate are prepaid (if interest rates have dropped), the certificate holder receives payments that are a return of principal, and that, when reinvested at lower current rates, produce a lower return (this is reinvestment risk). A. equity security D. the credit rating is considered the highest of any agency security. B. serial structures Macaulay durationD. I, II, III, IV. 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? Thus, PACs have lower extension risk than plain vanilla CMO tranches. They are sold in $100 minimums at a discount to par value, just like Treasury Bills. I. Interest received from all of the following securities is exempt from state and local taxes EXCEPT: A. Fannie Mae Pass Through CertificatesB. Market interest rate movements have no effect on the stated interest rate paid by the security; and would not affect the credit rating of the issue. . C. Pay interest at maturity Thus, when interest rates rise, prepayment risk is decreased. Treasury Bills All of the following trade "and interest" EXCEPT: Which of the following are TRUE statements regarding treasury bills? I. the trading market is very active, with narrow spreads A. the pooling of mortgages of similar maturities to back the security Interest is paid after all other tranches CMOs receive the same credit rating (AAA or AA) as the underlying mortgage backed pass-through certificates held in trust. Ginnie Mae bonds are traded Over the Counter, The "modification" of Ginnie Mae modified pass through certificates is: Treasury note. U.S. Government Agency Securities trade flat IV. STRIPS CMO issues are rated AAAC. The service limit is set by Oracle based on the pricing model. Agency CMOs are traded in the public markets while Private Label CMOs can only be sold in private placements and cannot be traded Because the companion absorbs both of these risks, it has the greatest risk and trades at the highest yield. There is little reinvestment risk with U.S. Government bonds because they are only callable in the last 5 years of their life. III. CMBs are Cash Management Bills. Thus, the prepayment rate for CMO holders will increase. IV. 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? The spread between the bid and ask is 2/32nds. $81.25 I, II, III, IV. GNMA pass through certificates are guaranteed by the U.S. Government, All of the following statements are true about the Government National Mortgage Association Pass-Through Certificates EXCEPT: B. interest payments are exempt from state and local tax holders of "plain vanilla" CMO tranches have higher prepayment risk, holders of PAC CMO tranches have lower prepayment risk I Holders of Companion CMO tranches have lower prepayment riskII Holders of Companion CMO tranches have higher prepayment riskIII Holders of plain vanilla CMO tranches have lower prepayment riskIV Holders of plain vanilla CMO tranches have higher prepayment risk. A. Planned Amortization Class If prepayments increase, they are made to the Companion class first. 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. Thus, because the PAC has lowered prepayment and extension risk, its yield will be lower than the surrounding Companion classes. D. $6.25 per $1,000. A. Thus, there is no purchasing power risk with these securities. D. Targeted Amortization Class, Which of the following statements are TRUE when comparing CMO PAC tranches to Companion tranches? $$ When interest rates rise, homeowners do not refinance their mortgages, and the prepayment rate will be lower than expected. A Targeted Amortization Class (TAC) is like a PAC, but is only buffered for prepayment risk by the Companion; it is not buffered for extension risk. You have to complete all course videos, modules, and assessments and receive a minimum score of 75% on each assessment to receive credit. Kabuuang mga Sagot: 2 . 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. A Z-tranch is a zero tranche that receives no payments, either interest or principal, until all other tranches before it are paid off. III. A. a dollar price quoted to a 4.90 basis Federal Reserve \text{Retained earnings}&\$175,400&\$220,000&\\ II. a. interest is paid at maturity through the Federal Reserve System II. B. quarterly CMOs are available in $1,000 denominations, as opposed to pass-through certificates that are $25,000 denominations. 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. General Obligation Bonds CMO classes may be specially structured in a manner that provides a variety of investment characteristics, such as yield, effective maturity and . I. Extended maturity risk Federal Home Loan Bank Bonds. TACs are like a "one-sided" PAC - they protect against prepayment risk, but not against extension risk. A. U.S. Government Agency Securities are quoted in 1/32nds Short-term Treasury Bills have almost no purchasing power risk as well, so they are considered to be a risk-free security.