Unit 3 - Incorrect (Types of Debt Securities)
A customer purchases five 6-1/4% U.S. Treasury notes at 98.24. How much will the customer receive on each interest payment date?
$156.25.
Seventy-five basis points are equal to which of the following?
.75% $7.50
All of the following have been recognized by the SEC under the Credit Rating Agency Reform Act as being registered with the commission to rate debt instruments. Which of the following historically has specialized in ratings for the insurance sector?
A.M. Best.
Which of the following expressions describes the current yield of a bond?
Annual interest payment divided by current market price
Which of the following securities is an original issue discount obligation?
13-week U.S. Treasury bills.
Which of the following risk factors would be least important to disclose in recommending CMO securities to public customers?
Credit risk.
Which of the following usually does NOT pay interest semiannually?
GNMA.
Which of the following are a direct obligation of the U.S. government?
Ginnie Maes.
You have a client who is about to retire and wants to rearrange his portfolio in order to have predictable income. Which of the following would NOT be a good investment vehicle?
Income bonds.
Which of the following is NOT true regarding Treasury Receipts?
Interest income is taxed at maturity.
Which of the following statements are TRUE regarding Sallie Mae debentures?
Interest is generally paid semiannually. Interest is exempt from state and local taxation.
CMO's pay interest
Monthly
Which of the following mortgage-backed securities would provide investors with the most predictable maturity date?
PACs.
A customer interested in a collateralized mortgage obligation (CMO) might look to which of the following for historical data or projections regarding mortgage prepayments?
PSA.
Which of the following is TRUE regarding GNMA?
Private lending institutions approved by GNMA originate eligible loans and sell the mortgage-backed securities to investors.
Which of the following securities is sold at auction?
T-bills.
Your customer wishes to lock in a long-term yield with minimal risk and is not interested in regular income. Which of the following securities should you recommend?
Treasury STRIPS.
Which one of the following best describes a debenture?
Unsecured corporate debt.
Which of the following accounts would a CMO Z-tranche be best suited for?
a professionally managed hedge fund specializing in real estate portfolio securities
If a customer sells a zero-coupon bond before maturity, gain or loss will be the difference between sales proceeds and:
accreted value.
Bond trust indentures are required for:
corporate debt securities
The terminology "guaranteed full faith and credit" is most applicable to:
interest and principal on a U.S. government issued bond.
If an investor watches the latest T-bill auction fall to 4.71% from 4.82%, the best interpretation is that:
investors who purchased bills at this auction paid more for them than purchasers last week.
T-bills are quoted:
on an annualized discount yield basis.
A planned amortization class (PAC) CMO offers:
protection from both prepayment and extension risk.
The function of the Federal National Mortgage Association (FNMA) is to:
purchase FHA-insured, VA-guaranteed, and conventional mortgages.
When investor confidence in the economy is increasing, a technical analyst would anticipate that:
yields on BBB-rated bonds will be higher than those on AAA-rated bonds. the spread between yields on AAA-rated and BBB-rated bonds will decrease.
The following is taken from the S&P Bond Guide: FLB Zr 37 87 87-½. What is the coupon rate on this bond?
0%
A married couple with a two-year-old child wants a suitable investment to help meet the financial obligations for the child's college education. Which of the following choices are the most suitable alternatives? A CMO tranche scheduled to mature in 5 years A STRIP scheduled to mature in 15 years Treasury receipts A money-market fund
A STRIP scheduled to mature in 15 years Treasury receipts
The current yield on a bond with a coupon rate of 7.5% currently selling at 105-½ is approximately
A bond with a coupon rate of 7.5% pays $75 of interest annually. Current yield equals annual interest amount divided by bond market price, or $75 / $1,055 = 7.109%, or approximately 7.1%.
Which of the following statements are TRUE of Ginnie Maes?
They are quoted in 1/32nds. They are traded with an accrued interest computed on a 30/360 basis.
Which of the following statements regarding U.S. government agency obligations are TRUE?
They generally have higher yields than direct U.S. obligations. The Federal National Mortgage Association (FNMA) is a publicly traded corporation
If interest rates increase, the interest payable on outstanding corporate bonds will
remain unchanged
U.S. government securities that are deposited with a trustee against which certificates are sold representing principal payments only on the securities are:
stripped bonds. subject to annual taxation on the per year accreted amount
Interest on direct debt issued by the U.S. government is taxable at:
the federal level and exempt at the state level.
Collateralized mortgage obligation (CMO) tranche A has been created to have the most predictable near term principal pay off. A tranche set up in this way will have:
the least reinvestment risk. a lower yield.
An investor interested in acquiring a convertible bond as part of his investment portfolio would:
want the safety of a fixed-income investment along with potential capital appreciation.
