Unit 7

Question 1

1. Interest on corporate bonds is
2. Interest on municipal securities is
3. Interest on issues of the Federal Government is
4. Interest on mortgage backed securities is
5. Interest in issues of US territories qualifies for

Answer 1

1. Taxable on all levels
2. May be taxed by the municipal level but not by federal government
3. Taxes by federal government but exempt on state and local levels
4. Taxes on all levels
5. Triple tax exemption

Question 2

National network of lending institutions that provides agricultural financing and credit

Privately owned, government sponsored

Backed by the Banks of the FCS

Answer 2

Farm credit system (FCS)

Question 3

Risk that underlying mortgages will remains outstanding longer than anticipated

Answer 3

Extended maturity risk of extension risk

Question 4

Risk that underlying mortgages will be paid off earlier than anticipated

Answer 4

Prepayment risk

Question 5

A wholly government owned corporation that issues pass through mortgage debt certificates baked by the full faith and credit of the US government

Answer 5

Government national mortgage association (GNMA)

Question 6

A measure of price changes in a market basket of consumer goods and services used to identify periods of inflation or deflation

Answer 6

Consumer price index (CPI)

Question 7

A zero coupon bond issued and backed by US Department of Tresury

Answer 7

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

Question 8

The generic term for a zero coupon bond issued by a brokerage firm and collateralized by the Treasury securities a custodian holds in escrow for the investor

Answer 8

Treasury receipt

Question 9

A marketable fixed interest US government debt security with a maturity of between 2-10 years

Answer 9

Treasure Note (T-Note)

Question 10

A marketable US government debt security with a maturity of 52 weeks or less

Answer 10

Treasury Bill (T-Bill)

Question 11

A marketable fixed interest US government debt security with a maturity of more than 10 years

Answer 11

Treasury Bond (T-Bond)

Question 12

Denomination of

GNMA are

FCS are

FHLMC are

FNMA are

SLMA are

Answer 12

GNMA- min of $1000 and multiples of $1 in excess of $1000. Yield quotes on 12 yr prepayment

FCS- $1000 with $1000 increments

FHLMC- different minimums
Discount notes- $1000, $1000
Reference notes - $2000, $1000

FNMA- $1000 with $1 increments. Interest paid semiannually

SLMA- $10,000

Question 13

A publicly traded corporation that promotes the nationwide secondary market in mortgages by issuing mortgage backed pass through debt certificates

Answer 13

Federal home loan mortgage corporation (FHLMC)

Question 14

Make principal and interest payments once a month

Sold by FHLMC

Answer 14

Mortgage participation certificates (PC)

Question 15

Makes interest payments twice a year and principal payments once a year

Answer 15

Guaranteed mortgage certificates (GMC)

Question 16

Publicly held corporation that provides mortgage capital. Purchases conventional insured mortgages from agencies such as FHA and VA.

Backed by general credit of FNMA

Answer 16

Federal national mortgage association (FNMA)

Question 17

A publicly owned corporation that purchases student loans from financial institutions and packages them for sale in the secondary market, thereby increasing the availability of money for educational loans

Answer 17

Student loan marketing association (Sallie Mae or SLMA)

Question 18

A security representing an interest in a pool of conventional, VA, FHA or other agency mortgages. The pool received the principal and interest payments which it passes through to each certificate holder

Answer 18

Pass through certificate

Question 19

Nations largest public power provider and a corporation of the US government, not backed by the US government. Backed by revenues generated by the agencies projects

Issues with maturities of 50 years

Answer 19

Tennessee valley authority (TVA)