Chapter 10 Flashcards Preview

Series 7 > Chapter 10 > Flashcards

Flashcards in Chapter 10 Deck (38)
1


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

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

2

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

$100

3

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

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

4

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

T-Bill

5

What is the maturity range of a T-Note?

2 to 10 years

6

What is the maturity range of a T-Bond?

more than 10 years

7

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

32nds

8

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

state and local tax

9

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

Federal only, and exempt from state and local

10

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

True,taxed at federal, state and local levels

11

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

An undivided interest in a pool of residential mortgages

12

How often do GNMA pass-throughs make payments?

monthly

13

Each payment from GNMA will represent both ____________ and ____________.

Principal and Interest

14

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

GNMA

15

What risk is primarily associated with mortgage-backed securities?

Prepayment risk. Mortgages get pre-paid through selling or re-financing, don't collect all of the interest

16

Is a CMO considered a derivative?

Yes

17

With CMOs, the term ____________ represents separate bond classes.

Tranche

18

Which tranche has the most predictable cash flow and maturity?

The PAC (Planned Amortization Class) tranche

19

Which tranche has the most unpredictable cash flow and maturity?

The support or companion tranche

20

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

Z Tranche

21

What are T-STRIPS?

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

22

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

23

What are TIPS?

Treasury Inflation-Protected Securities

24

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

CPI - Consumer Price Index

25


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

True

26

What system is used for the issuance of Treasury securities?

an auction

27

At a Treasury auction, __________________ bids are awarded first.

non-competitive

28

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


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

29

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

T+1 (1 business day)

30

How is interest on Treasuries treated for tax purposes?

Subject to federal tax, exempt at state and local level

31

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

triple-tax-exempt

32

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

No federal, state, or local tax

33

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


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

34

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

quantity and price

35

When must retail communication concerning CMOs be filed with FINRA?

within 10 business days of first use

36

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

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

37

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

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

38

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

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