Government Securities Flashcards

1
Q

Treasury Bills

A

1yr max term

Issued at a discount from par and investor receives par value at maturity

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2
Q

Treasury Notes

A

1-10 year term

Issued at $1,000

Pays semi-annual interest

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3
Q

Treasury Bonds

A

10-30 year term

Issued at $1,000

Pays semi-annual interest

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4
Q

Treasury STRIIP’s

A

Zero-coupon bond issued by US government

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5
Q

Treasury Receipt

A

Created by a bank or Broker-Dealer.

They buy Treasury Notes and “flip” them by issuing a new security that’s funded by the T Notes.

Is a Zero-coupon bond

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6
Q

TIPS (Treasury Inflation-Protected Security)

A

A treasury Security destined to protect the holder from Inflation.

The coupon rate is set at issue but the principle is adjusted every 6 months based on Inflation

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7
Q

Phantom Income

A

Happens to Zero Coupon Bonds

They don’t get paid interest but their CMV goes up. The dollar amount their price goes up is their Phantom Income because its considered Phantom Income Even though its not real money.

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8
Q

Ginnie Mae

A

Government National Mortgage Association

Provide financing for mortgages. Those mortgages pay interest and that interest pays back investors

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9
Q

Fannie Mae

A

Federal National Mortgage Association

Provide financing for mortgages. Those mortgages pay interest and that interest pays back investors

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10
Q

Fredie Mac

A

Federal Home Loan Mortgage Corporation

Provide financing for mortgages. Those mortgages pay interest and that interest pays back investors

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11
Q

Sally Mae

A

Student Loan Marketing Association

Provide financing for Student Loans. Those loans pay interest and that interest pays back investors

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12
Q

Federal Farm Credit System

A

Designed to ensure that farmers have access to capital they need to operate their farms

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13
Q

CMO’s (Collateralized Mortgage Obligation)

A

A pool of mortgages that pays interest to investors that is sold into the secondary market.
Issued by:
- Government Agencies
- Private Finance Companies

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14
Q

Different Types of CMO’s

A
  • PO (Principal Only)
  • IO (Interest Only)
  • PAC (Planned Amortization Class) => THESE PROVIDE THE MOST PROTECTION
  • TAC (Targeted Amortization Class)
  • Private Labeled CMO (created by private companies not government agencies)
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15
Q

Risks of CMO’s

A

Prepaid Risk - risk the homeowner pays the mortgage off early. Usually means interest rates went down and now the investor has to reinvest that money at a lower interest rate

Extension Risk - Risk the homeowners take longer to pay off the mortgage. Usually means interest rates went up and now investor is stuck with lower interest payments

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