SIE CH.2 U.S. government debt Section 3
Payments to holders of Ginnie Mae pass-through certificates are made: A. monthly and represent a payment of both interest and principal B. monthly and represent a payment of only interest C. semi-annually and represent a payment of both interest and principal D. semi-annually and represent a payment of only interest
A
What risk is unique to holders of mortgage backed pass through securities? A. Prepayment risk B. Interest rate risk C. Credit risk D. Reinvestment risk
A
A security which gives the holder an undivided interest in a pool of mortgages is known as a: A. unit investment trust B. pass through certificate C. first mortgage bond D. face amount certificate
B
100 Basis points equals: A. .01% B. .1% C. 1% D. 10%
C
A customer buys a $1,000 par Treasury Inflation Protection security with a 4% coupon and a 10 year maturity. If the inflation rate during the first year of the security's life is 5%, the: A. principal amount remains at $1,000 and the coupon rate remains at 4% B. principal amount remains at $1,000 and the coupon rate is adjusted to 5% C. principal amount is adjusted to $1,050 and the coupon rate remains at 4% D. principal amount is adjusted to $1,050 and the coupon rate is adjusted to 5%
C
All of the following trade "flat" EXCEPT: A. Treasury Bills B. Treasury STRIPS C. Treasury Bonds D. Treasury Receipts
C
How is the interest income received from U.S. Government obligations taxed? A. Subject to both federal and state income tax B. Exempt from both federal and state income tax C. Subject to federal income tax and exempt from state income tax D. Exempt from federal income tax and subject to state income tax
C
The nominal interest rate on a TIPS approximates the: A. discount rate B. federal funds rate C. real interest rate D. expected interest rate
C
U.S. Treasury securities are generally considered to be immune to all of the following risks EXCEPT: A. default risk B. marketability risk C. purchasing power risk D. credit risk
C
Which investment gives the greatest protection against purchasing power risk? A. 10 year Double Barreled Bonds B. 10 year Guaranteed Bonds C. 10 year TIPS D. 10 year STRIPS
C
Which of the following investments gives a rate of return that cannot be affected by "reinvestment risk"? A. Treasury Notes B. Treasury Bonds C. Treasury Receipts D. Ginnie Mae Pass Through Certificate
C
Which of the following securities does NOT trade "flat" ? A. Treasury Bills B. STRIPS C. Treasury Notes D. Treasury Receipts
C
A customer who lives in the state of New York who buys GNMA Pass-Through Certificate: A. must include the interest income received on his federal tax return, but not his state tax return B. does not include the interest income on his federal tax return, but must include it on his state tax return C. excludes the interest income from both his federal tax return and his state tax return D. must include the interest income receive on both his federal tax return and his state tax return
D
All of the following statements describe Freddie Mac EXCEPT: A. Freddie Mac buys conventional mortgages from financial institutions B. Freddie Mac is an issuer of mortgage backed pass-through certificates C. Freddie Mac is a corporation that is publicly traded D. Freddie Mac debt issues are directly guaranteed by the U.S. Government
D
Series EE bonds: A. are negotiable B. are issued in minimum denominations of $100 C. pay interest semi-annually D. pay interest at redemption
D
Treasury notes and bonds are: A. bearer securities B. registered to interest only C. registered to principal only D. fully registered in book entry form
D
U.S. Government Agency securities are: A. Quoted in 1/8ths and traded with accrued interest computed on an actual day month / actual day year basis B. Quoted in 1/8ths and traded with accrued interest computed on a 30 day month / 360 day year basis C. Quoted in 1/32nds and traded with accrued interest computed on an actual day month / actual day year basis D. Quoted in 1/32nds and traded with accrued interest computed on a 30 day month / 360 day year basis
D
Which investment does NOT have purchasing power risk? A. Treasury Notes B. STRIPS C. Treasury Bonds D. TIPS
D
Which statement about Treasury STRIPS is TRUE? A. Treasury STRIPS are suitable investments for individuals seeking a high level of income B. The interest income is tax free C. At maturity, there is a capital gain D. The investor's interest rate is locked in at purchase, eliminating any reinvestment risk
D
Which statement is TRUE about CMBs? A. CMBs are sold at par at a regular weekly auction B. CMBs are sold at a discount at a regular weekly auction C. CMBs are sold at par on an "as needed" basis D. CMBs are sold at a discount on an "as needed" basis
D
A customer buys 5M of 3 3/4% Treasury Bonds at 95-5. How much will the customer receive at each interest payment? A. $93.75 B. $187.50 C. $325.00 D. $375.00
A
A customer with $25,000 to invest could buy: A. 1 mortgage backed pass through certificate at par B. 2 mortgage backed pass through certificates at par C. 10 mortgage backed pass through certificates at par D. 50 mortgage backed pass through certificates at par
A
All of the following are true statements regarding Treasury Bills EXCEPT: A. T-Bills are issued in bearer form in the United States B. T-Bills are registered in the owner's name in book entry form C. T-Bills are issued at a discount D. T-Bills are non-callable
A
All of the following trade "and interest" EXCEPT: A. Treasury Bills B. Treasury Notes C. Treasury Bonds D. Corporate Bonds
A
Which of the following is the most likely purchaser of STRIPS? A. Pension fund B. Money market fund C. Individual seeking current income D. Individual wishing to avoid purchasing power risk
A
Which of the following trades settle in "clearing house" funds? A. General Obligation Bonds B. U.S. Government Bonds C. Agency Bonds D. GNMA Pass-Through Certificates
A
Which statement about Treasury STRIPS is FALSE? A. Treasury STRIPS are not susceptible to purchasing power risk B. Treasury STRIPS are zero coupon instruments C. Treasury STRIPS are not subject to reinvestment risk D. Treasury STRIPS are not subject to default risk
A
Which statement is TRUE regarding Treasury debt instruments? A. Treasury securities are sold by competitive bidding at auctions conducted by the Federal Reserve B. Treasury securities are sold via negotiated offerings through investment bankers C. Treasury securities are issued in fully registered form only D. The SEC oversees the Treasury securities marketplace
A
Which statement is TRUE regarding government agencies and their obligations? A. Fannie Mae is a publicly traded company B. Ginnie Mae obligations trade at higher yields than Fannie Mae obligations C. All Agency obligations have the direct backing of the U.S. Government D. Ginnie Mae shares are listed and trade
A
A 15-year 3 1/2% Treasury Bond is quoted at 98-4 - 98-9. The bond pays interest on Jan 1st. and Jul. 1st. A customer sells 5M of the bonds. Approximately how much will the customer receive, disregarding commissions and accrued interest? A. $4,906.25 B. $4,914.05 C. $4,920.00 D. $4,945.00
A 5M means $5,000 par at 98.125%x$5,000=$4906.25
A 5-year 3 1/2% Treasury Note is quoted at 98-4 - 98-9. The note pays interest on Jan 1st and Jul 1st. A customer buys 5M of the notes. Approximately how much will the customer pay, disregarding commissions and accrued interest? A. $4,906.25 B. $4,914.06 C. $4,920.00 D. $4,945.00
B
A government securities dealer quotes a 3-month Treasury Bill at 5.00 Bid - 4.90 Ask. A customer who wishes to sell 1 Treasury Bill will receive: A. a dollar price quoted to a 4.90 basis B. a dollar price quoted to a 5.00 basis C. $4,900 D. $5,000
B
A government securities dealer quotes a 3-month Treasury Bill at 6.00 Bid - 5.90 Ask. A customer who wishes to sell 1 Treasury Bill will receive: A. a dollar price quoted to a 5.90 basis B. a dollar price quoted to a 6.00 basis C. $5,900 D. $6,000
B
All of the following statements are true about the Government National Mortgage Association Pass-Through Certificates EXCEPT: A. GNMA is empowered to borrow from the Treasury to pay interest and principal if necessary B. interest payments are exempt from state and local tax C. certificates are issued in minimum units of $25,000 D. the credit rating is considered the highest of any agency security
B
All of the following statements are true regarding GNMA "Pass Through" Certificates EXCEPT: A. the certificates are quoted on a percentage of par basis in 32nds B. the certificates are available in $1,000 minimum denominations C. certificates trade "and interest" D. accrued interest on the certificates is computed on a 30 day month/360 day year basis
B
An investor in 30-year Treasury Bonds would be most concerned with: A. deflation B. inflation C. marketability risk D. call risk
B
An investor wishes to "lock in" an assured stream of interest payments for the next several years. The best recommendation to the customer is: A. Treasury Receipts B. Non-Callable Treasury Bonds C. AAA Rated Corporate Bonds with high call premiums D. AAA Rated Corporate Bonds trading at large premiums
B
If Treasury bill yields are dropping at auction, this indicates that: A. Treasury bill prices are rising and interest rates are rising B. Treasury bill prices are rising and interest rates are falling C. Treasury bill prices are falling and interest rates are rising D. Treasury bill prices are falling and interest rates are falling
B
Prepayment risk applies to holders of: A. long duration bonds B. Ginnie Mae pass-through certificates C. General Obligation bonds D. all holders of fixed income securities
B
Trades of U.S. Government bonds settle: A. next business day in payment by check B. next business day in payment by Federal Funds C. the following Thursday in payment by Federal funds D. 2 business days after trade date
B
When comparing the debt issues of Ginnie Mae to Fannie Mae, which statement is TRUE? A. Both Ginnie Mae and Fannie Mae issues are backed by the implied guarantee of the U.S. Government B. Ginnie Mae issues are backed by the full faith and credit of the U.S. Government and typically trade at lower yields than Fannie Mae issues C. Fannie Mae issues are directly backed by the full faith and credit of the U.S. Government and typically trade at lower yields than Ginnie Mae issues D. Both Fannie Mae and Ginnie Mae are directly backed by the full faith and credit of the U.S. Government
B
When interest rates rise, which statement is TRUE? A. Shorter maturity bond prices are affected more than longer maturity bond prices B. Longer maturity bond prices are affected more than shorter maturity bond prices C. T-Bill prices are affected more than T-Bond prices D. Maturity does not materially affect the level of interest rate risk
B
Which characteristic is NOT common to both Treasury STRIPS and Treasury Bills? A. Minimum $100 denominations B. Quoted as a percent of par in 32nds C. Pay interest at maturity D. Guaranteed by the U.S. Government
B
Which is considered to be a direct obligation of the U.S. Government? A. Federal National Mortgage Association Pass Through Certificates B. Government National Mortgage Association Pass Through Certificates C. Federal National Mortgage Association Bonds D. Federal Home Loan Bank Bonds
B
Which of the following designates "primary" U.S. Government securities dealers? A. Securities and Exchange Commission B. Federal Reserve C. Office of the Comptroller of Currency D. Congress
B
Which of the following is correct regarding Treasury Bills? A. T-Bills are issued in bearer form in the United States and are issued at par B. T-Bills are registered in the owner's name in book entry form and are issued at a discount C. T-Bills are callable at any time and issued at par D. T-Bills are issued at a discount in bearer form
B
Which statement is TRUE about the Federal National Mortgage Association(FNMA)? A. FNMA is a publicly traded corporation that issues pass through certificates guaranteed by the U.S. Government B. FNMA is a publicly traded corporation that issues pass through certificates which are not guaranteed by the U.S. Government C. FNMA is owned by the U.S. Government and issues pass through certificates that are U.S. Government guaranteed D. FNMA is owned by the U.S. Government and issues pass through certificates that are not guaranteed by the U.S. Government
B
Yields on 3 month Treasury bills have declined to 1.84% from 2.21% at the prior week's Treasury auction. This indicates that: A. Treasury bill prices are falling B. market interest rates are falling C. demand for Treasury bills is weakening D. the Federal Reserve may have to loosen credit
B
The Federal Reserve is: A. a primary purchaser of Treasury securities and an active participant in the secondary market for these issues B. a primary purchaser of Treasury securities but not an active participant in the secondary market for these issues C. not a primary purchaser of Treasury securities but an active participant in the secondary market for these securities D. not a primary purchaser of Treasury securities and not an active participant in the secondary market for these securities
C
Treasury Notes are issued by the U.S. Government in: A. bearer form in minimum denominations of $100 B. bearer form in minimum denominations of $10,000 C. book entry form in minimum denominations of $100 D. book entry form in minimum denominations of $10,000
C
Which of the following agencies issuing mortgage backed pass through certificates is permitted to purchase conventional mortgages that are not VA or FHA insured? A. Fannie Mae only B. Both Fannie Mae and Freddie Mac C. Freddie Mac only D. Sallie Mae only
C
Which of the following is a TRUE statement regarding Fannie Mae? A. Fannie Mae has only issued negotiable debt securities B. Fannie Mae has only issued negotiable equity securities C. Fannie Mae has issued negotiable debt and equity securities D. Fannie Mae has not issued negotiable securities
C
Which risk is NOT applicable to Ginnie Mae Pass Through Certificates? A. Purchasing power risk B. Risk of early prepayment of mortgages if interest rates fall C. Risk of default if homeowners do not make their mortgage payments D. Risk of loss of principal if interest rates rise
C
Which statement is FALSE about CMBs? A. CMBs are used to smooth out cash flow B. CMBs are sold at a discount to par C. CMBs are sold at a slightly lower yield than T-Bills D. CMBs are direct obligations of the U.S. government
C
Which statement is FALSE regarding Treasury Inflation Protection securities? A. In periods of deflation, the amount of each interest payment will decline B. In periods of deflation, the interest rate is unchanged C. In periods of deflation, the principal amount received at maturity will decline below par D. In periods of deflation, the principal amount received at maturity is unchanged at par
C
Which statement is TRUE about the Government National Mortgage Association (GNMA)? A. GNMA is a publicly traded corporation that issues pass through certificates which are guaranteed by the U.S. Government B. GNMA is a publicly traded corporation that issues pass through certificates which are not guaranteed by the U.S. Government C. GNMA is owned by the U.S. Government and issues pass through certificates which are guaranteed by the U.S. Government D. GNMA is owned by the U.S. Government and issues pass through certificates which are not guaranteed by the U.S. Government
C
Which statement is TRUE regarding the trading of government and agency bonds? A. The trading market is inactive and issues are quoted by dealers in minimum increments of 1/32nds B. The trading market is inactive and issues are quoted by dealers in minimum increments of 1/8ths C. The trading market is active and issues are quoted by dealers in minimum increments of 1/32nds D. The trading market is active and issues are quoted by dealers in minimum increments of 1/8ths
C
Which statement regarding Freddie Mac is FALSE? A. Freddie Mac buys conventional mortgages from financial institutions B. Freddie Mac is an issuer of mortgage backed pass-through certificates C. Freddie Mac debt issues are directly guaranteed by the U.S. Government D. Freddie Mac is a corporation that is publicly traded
C
All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: A. FNMA is a publicly traded company B. interest payments are subject to state and local tax C. certificates are issued in minimum units of $25,000 D. the credit rating is considered the highest of any agency security
D
If Treasury bill yields are rising at auction, this indicates that: A. interest rates are falling while bill prices are rising B. interest rates are falling while bill prices are falling C. interest rates are rising while bill prices are rising D. interest rates are rising while bill prices are falling
D
Regular way trades of U.S. Government bonds settle through the: A. National Securities Clearing Corporation on the same day as trade date B. National Securities Clearing Corporation on the business day after trade date C. Federal Reserve System on the same day as trade date D. Federal Reserve System on the business day after trade date
D
Which statement regarding Treasury Bills is FALSE? A. T-Bills are original issue discount obligations B. T-Bills are auctioned off weekly by the Federal Reserve C. When T-Bills mature, the difference between the purchase price and the redemption price is taxable as interest income D. Treasury Bills are an agency security
D
A customer buys 5M of 3 1/2% Treasury Bonds at 101-16 The customer will pay how much for the bonds? A. $1,011.60 B. $1,015.00 C. $5,058.00 D. $5,075.00
D 101-16 means 101 16/32=101.5% of $5,000 =$5,075
