U.S. Government and Agency Debt Securities

Question 1

A competitive bid placed at a Treasury auction will indicate both ___________ and _________.

Answer 1

A competitive bid placed at a Treasury auction will indicate both quantity and price.

Question 2

_______________ following the trade date is settlement for trades of U.S. Government securities or option contracts.

Answer 2

1 business day (T+1) following the trade date is settlement for trades of U.S. Government securities or option contracts

Question 3

True or False: T-Bills are quoted on a dollar basis.

Answer 3

False. T-Bills are quoted on a discount yield basis.

Question 4

Interest on Federal Farm Credit system and FHLB securities is subject to which taxes?

Answer 4

Federal only, and exempt from state and local

Question 5

What is the maturity range of a T-Bond?

Answer 5

More than 10 years

Question 6

Name two requirements that must be followed with CMO-related retail communication.

Answer 6

CMOs may not be compared to other investments (like CDs), and educational material must be offered

Question 7

______ is the mortgage-backed agency that is fully backed by the U.S. Government.

Answer 7

GNMA is the mortgage-backed agency that is fully backed by the U.S. Government.

Question 8

How is interest on Treasuries treated for tax purposes?

Answer 8

Exempt at the state and local level, but subject to federal tax

Question 9

Is a CMO considered a derivative?

Answer 9

Yes

Question 10

True or False: Agency-backed CMOs have high credit ratings.

Answer 10

True. They are usually highly rated because of the collateral backing them.

Question 11

The principal value of TIPS may be adjusted based on changes to the __________________________.

Answer 11

The principal value of TIPS may be adjusted based on changes to the Consumer Price Index (CPI).

Question 12

With CMOs, the term ____________ represents separate bond classes.

Answer 12

With CMOs, the term tranche represents separate bond classes.

Question 13

Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in ______.

Answer 13

Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in 32nds.

Question 14

What is the maturity range of a T-Note?

Answer 14

2 to 10 years

Question 15

What price do non-competitive bidders agree to pay at a Treasury auction?

Answer 15

The lowest price (highest yield) of the accepted competitive bids

Question 16

When must retail communication concerning CMOs be filed with FINRA?

Answer 16

Within 10 business days of first use

Question 17

True or False: The settlement date for T-Bills purchased at the auction is the next business day.

Answer 17

False. Settlement at auction is the Thursday following the auction. Next business day is for secondary market trading.

Question 18

What are T-STRIPS?

Answer 18

Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons

Question 19

Which security has no connection to CMOs - GNMA, FNMA, FHLMC or SLMA?

Answer 19

Student Loan Marketing Association (SLMA) - GNMA, FNMA, and FHLMC are associated.

Question 20

At a Treasury auction, __________________ bids are awarded first.

Answer 20

At a Treasury auction, non-competitive bids are awarded first.

Question 21

What system is used for the issuance of Treasury securities?

Answer 21

An auction

Question 22

The tranche that is the last to receive cash flow is the ____________.

Answer 22

The tranche that is the last to receive cash flow is the Z tranche.

Question 23

Which tranche has the most unpredictable cash flow and maturity?

Answer 23

The support or companion tranche

Question 24

The following would be a quote for what security? Bid 4.26 Asked 4.22

Answer 24

T-Bill

Question 25

T-Bills are issued in maturities of: ____ week, ____ week, ____ week, and ____ week

Answer 25

T-Bills are issued in maturities of: 4 week, 13 week, 26 week, and 52 week

Question 26

What are TIPS?

Answer 26

Treasury Inflation-Protected Securities

Question 27

The minimum face value of a T-Bill, T-Note or T-Bond is $______.

Answer 27

The minimum face value of a T-Bill, T-Note or T-Bond is $100.

Question 28

What risk is primarily associated with mortgage-backed securities?

Answer 28

Prepayment risk

Question 29

True or False: Interest paid on GNMA, FNMA, FHLMC, and SLMA agency bonds is fully taxable to investors.

Answer 29

True. The interest is taxed at the federal, state, and local level.

Question 30

True or False: The interest rate on TIPS is fixed, but the principal may be adjusted.

Answer 30

True

Question 31

How often do GNMA pass-throughs make payments?

Answer 31

GNMA pass-throughs make payments monthly.

Question 32

What does ownership of a GNMA pass-through certificate represent?

Answer 32

An undivided interest in a pool of residential mortgages

Question 33

Each payment from GNMA will represent both ____________ and ____________.

Answer 33

Each payment from GNMA will represent both principal and interest.

Question 34

Interest paid on bonds issued by U.S. territories or possessions is ___________________.

Answer 34

Interest paid on bonds issued by U.S. territories or possessions is triple-tax-exempt.

Question 35

Which tranche has the most predictable cash flow and maturity?

Answer 35

The PAC (Planned Amortization Class) tranche

Question 36

What is a major advantage to investing in a bond issued by the Commonwealth of Puerto Rico?

Answer 36

Triple-tax-exempt interest

Question 37

Since T-STRIPS are sold at a discount and mature at par, what must be done to their basis each year?

Answer 37

The discount must be accreted each year.

Question 38

Though subject to federal tax, interest on Treasuries is exempt from ________ and ________ tax.

Answer 38

Though subject to federal tax, interest on Treasuries is exempt from state and local tax.

Question 39

Gov Bond Interest Accrual

Answer 39

Actual Day Month / Actual year up to but not including settlement