Ch. 8 S7 Flashcards
Is a CMO considered a derivative?
Yes
Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quite in _______.
32nds
Which tranche has the most predictable cash flow and maturity?
The PAC (Planned Amortization Class) tranche
How is interest on treasuries treated for tax purposes?
Exempt from state and local, federally taxable
Since T-STRIPS are sold at a discount and mature at par, what must be done to their basis each year?
The discount must be accreted each year.
Which security has no connection to CMOs - GNMA, FNMA, FHLMC, or SLMA?
SLMA
What are TIPS?
Treasury Inflation Protected Securities
The following would be a quote for what security? Bid: 4.26 Asked: 4.22
T-Bill
What risk is primarily associated with mortgage backed securities?
Prepayment risk
Interest on Federal Farm Credit system and FHLB securities is subject to which taxes?
Federal only, and exempt from state and local
What system is used for the issuance of Treasury securities?
An auction
What are T-STRIPS?
Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupon
T/F: T-Bills are quoted on a dollar basis.
F; they are quoted on a discount yield
T/F: The interest rate on TIPS is fixed, but the principal may be adjusted.
T
What does ownership of GNMA pass-through certificate represent?
An undivided interest in a pool of residential mortgages.
How often to GNMA pass-throughs make payments?
Monthly
What price do non-competitive bidders agree to pay at a treasury auction?
The lowest price (highest yield) of the accepted competitive bids
T/F: Interest paid on GNMA, FNMA, FHLMC, and SLMA agency bonds is fully taxable to investors.
T
__________ is the mortgage backed agency that is fully backed by the US Government.
GNMA
The tranche that is the last to receive cash flow is the _____________.
Z tranche
T/F: the settlement date for T-Bills purchased at the auction is the next business day.
F; settlement at auction is the Thursday following the auction. Next business day is for secondary market trading
Describe an asset backed security.
A security whose value and income are collateralized by group of assets, usually bank receivables (mortgages)
The minimum face value of a T-Bill, T-Note, or T-Bond is $_______.
$100
With CMOs, the term ________ represents separate bond classes.
Tranche
