Chapter 3

Question 1

Your customer wants to invest in a conservative income-producing inves ment and is inquiring about GNMAs. She wants to know the minimur dollar amount required to purchase a pass-through certificate. You should tell her:
a. $1,000
b. $10,000
c. There is no minimum; you can invest almost any sum.
d. $5,000

Answer 1

a. $1,000

The minimum dollar amount to purchase a GNMA pass-through certificate is $1,000.

Question 2

Your customer buys a U.S. T-bond at 103.16. How much did he pay for the bond? a. $1,031.60
b. $103.16
c. $1,035.00
d. $10,316.00

Answer 2

c. $1,035.00

T-bonds are quoted as a percentage of par to 32nds of 1%. A quote
of 103.16 = 103
16/32% × 1,000 = $1,035.

Question 3

change to when is interest on a Tbill paid?
a. At maturity
b. Annually
c. Quarterly
d. Monthly

Answer 3

a. At maturity

The T bills are sold at a discount and at maturity are redeemed at face value, which includes the interest income.

Question 4

All of the following are true regarding the Federal National Mortgage Association (Fannie Mae) except:
a. it purchases mortgages and packages them to create mortgage-backed securities that pay interest semiannually.
b. It provides an investment free of federal, state, and local taxes.
c. It is a public for-profit corporation.
d. Its purpose is to earn a profit by providing mortgage capital.

Answer 4

b. It provides an investment free of federal, state, and local taxes.

Interest earned by investors on FNMA securities is taxable at all levels: federal, state, and local.

Question 5

An investor purchased a treasury bond at 95.03. How much did he pay for the bond?
a. $9,530.00
b. $9,500.9375
c. $950.9375
d. $953.00

Answer 5

c. $950.9375

The investor purchased the Treasury bond at 95.03 or 95 3/32% of $1,000=$950.9375