Chapter 10 - U.S. Government and Agency Debt Securities Flashcards

1
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

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

A

False.

T-Bills are quoted on a discount yield basis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

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

A

T-Bill

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the maturity range of a T-Note?

A

2 to 10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the maturity range of a T-Bond?

A

More than 10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

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

A

Federal only, and exempt from state and local

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

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

A

An undivided interest in a pool of residential mortgages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How often do GNMA pass-throughs make payments?

A

GNMA pass-throughs make payments monthly.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Each payment from GNMA will represent both ____________ and ____________.

A

Each payment from GNMA will represent both principal and interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What risk is primarily associated with mortgage-backed securities?

A

Prepayment risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Is a CMO considered a derivative?

A

Yes

17
Q

With CMOs, the term ____________ represents separate bond classes.

A

With CMOs, the term tranche represents separate bond classes.

18
Q

Which tranche has the most predictable cash flow and maturity?

A

The PAC (Planned Amortization Class) tranche

19
Q

Which tranche has the most unpredictable cash flow and maturity?

A

The support or companion tranche

20
Q

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

A

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

21
Q

What are T-STRIPS?

A

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

22
Q

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

A

The discount must be accreted each year.

23
Q

What are TIPS?

A

Treasury Inflation-Protected Securities

24
Q

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

A

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

25
Q

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

A

True

26
Q

What system is used for the issuance of Treasury securities?

A

An auction

27
Q

At a Treasury auction, ________ bids are awarded first.

A

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

28
Q

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

A

False.

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

29
Q

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

A

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

30
Q

How is interest on Treasuries treated for tax purposes?

A

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

31
Q

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

A

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

32
Q

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

A

Triple-tax-exempt interest

33
Q

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

A

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

34
Q

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

A

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

35
Q

When must retail communication concerning CMOs be filed with FINRA?

A

Within 10 business days of first use

36
Q

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

A
  • CMOs may not be compared to other investments (like CDs)
  • Educational material must be offered
37
Q

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

A

Student Loan Marketing Association (SLMA)

  • GNMA, FNMA, and FHLMC are associated.
38
Q

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

A

True.

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