The asked yield is the yield to maturity on the Treasury STRIP using the ask

price in the calculation.

The asked yield is the yield to maturity on the Treasury note or bond using
the ask price in the calculation.

The change is the yield to maturity on the Treasury note or bond using the
ask price in the calculation. FALSE

The change is the yield to maturity on the Treasury note or bond using the
bid price in the calculation. FALSE

For a callable bond, the difference between the face value of the bond and
the call price paid is the call premium

With best efforts underwriting, the issuing firm assumes the risk that the
entire bond issue might not be sold.

The sinking fund may be managed by the bond trustee.

The major issuers of bond market securities (borrowers) are governments

corporations

In the United States, the quoted price for a Treasury note or bond is the clean
price which does not include the accrued interest.

The initial primary market sale for municipal bonds occurs through which of
the following methods: a private placement to a small group of investors.
a public offering using an investment bank as underwriter.

Eurobonds are placed in the primary market by investment banks using firm
commitment offerings.

The bonds which are considered to be the riskiest and pay the highest yields
are subordinated debentures
Individual rules and restrictions within the bond indenture are referred to as
covenants.

A 10 year Treasury note can be separated into 21 (21 = 20 semiannual coupons + repayment
of principal) individual STRIP securities.

Because general obligation bonds rely upon tax revenues for repayment,
taxpayer approval is usually required.

The interest rate spread is the difference between the yield on a bond and the
yield on a Treasury security of similar maturity

The characteristics of international bond markets are that (One of the

characteristics of international bond markets) ‫لو مذكور بسؤالك غير هذول يعني غلط‬
bonds are traded outside the jurisdiction of any single country.
bonds are underwritten by an international syndicate.
bonds are offered in unregistered form.
bonds are offered to investors in different countries.

The semiannual coupon paid on TIPS securities is based on the inflation-

adjusted principal and so may vary from period to period.

The source of funds for repayment of municipal bonds is tax receipts or

project revenues

The three major bond rating agencies are Moody's Standard & Poor's (S&P).
Fitch Ratings

Prices of Treasury notes and bonds are quoted as a percentage of the face
value of the security.

Prices of Treasury STRIP securities are quoted as a percentage of the face

value of the security.
If the market value of the securities the bond holder receives with conversion
exceeds the market value of the bond, the bond holder will convert and take
a profit

If the market value of the securities the bond holder receives with conversion
does not exceed the market value of the bond, the bond holder will not
convert

While Treasury bills are sold on a discount basis, Treasury notes and bonds
pay semiannual coupon interest.

Bonds issued with stock warrants attached give the bond holder the
opportunity to purchase common stock of the issuing firm at a specified
price up to a specified date, without loss of the underlying bond.

The principal value of a TIPS security is adjusted every six months upward
for inflation or downward for deflation, as measured by the percentage
change in the consumer price index.

Bond markets are traditionally classified into three types, which are
corporate bonds. treasury notes and bonds. municipal bonds.

The invention of the Eurobond was motivated by the desire to avoid

regulation and high taxes on debt securities issued by firms in the U. S.

With a registered bond, the bond owner's identification information is

maintained electronically by the issuer and coupon payments are mailed or
wire transferred to the owner.

For all three bond rating agencies, lower risk results in a higher bond rating.
For all three bond rating agencies, higher risk results in a lower bond rating.

Treasury bonds have original issue maturities from over 10 years (true)
Treasury bonds have original issue maturities from over 1 to 10 years (true)

Treasury STRIPS are created by and sold to investors through government

securities brokers and dealers
 The price of a STRIP security is the present value of the face value of the
STRIP discounted using the yield to maturity and semiannual compounding

When an investor buys a Treasury note or bond between coupon payments,

the buyer must compensate the seller for any portion of the coupon payment
that has accrued between the last coupon payment and the settlement date.

Two types of municipal bonds exist: general obligation and revenue bonds.

The legal contract that specifies the rights and obligations of the bond issuer
and the bond holders is called the bond indenture.

A sinking fund provision is attractive to investors, so bonds with a sinking

fund provision generally have lower yields than bonds without.

Interest rates on all bonds are affected by inflation and the real risk-free rate
which is typically measured using Treasury security rates.

Due to the value of the embedded conversion option to investors, the yields
on convertible bonds tend to be lower than the yields on nonconvertible
bonds.

Since 1997, the U. S. Treasury has issued Treasury Inflation Protected

Securities (TIPS) whose returns are not fixed but are tied to the inflation rate.

The dirty price for a Treasury note or bond is the sum of the clean price plus
the accrued interest

Negative yields can and have been bid in the auction for TIPS auction for but
they cannot be bid in the other types of Treasury notes and bonds.

Bonds backed by insurance will have the credit rating of the insurer and a
substantially lower interest rate than if uninsured.
Investors will accept lower interest rates on municipal bonds than on corporate
bonds due the tax-exempt nature of municipal bonds.

With best efforts underwriting, the investment bank makes no guarantees but
acts as a placing or distribution agent for the bonds and collects a fee.

Most bonds have a deferred call provision in which the right to call the bond is
deferred for a period of time for the benefit of the investors.

Each STRIP security must be valued as a zero-coupon bond with maturity

determined by its original payment date

The coupon rate for a Treasury note or bond is determined by rounding the stop-
out yield down to the nearest 0.125 percent.

With firm commitment underwriting, the underwriter assumes the risk that the
entire bond issue might not be sold.

With firm commitment underwriting the investment bank guarantees the issuer
a price for newly issued bonds by purchasing the entire issue at a fixed price.

With low risk underwriting the investment bank guarantees the issuer a price
for newly issued bonds by purchasing the entire issue at a fixed price. FALSE

In open negotiation underwriting guarantees the issuer a price for newly issued
bonds by purchasing the entire issue at a fixed price. FALSE

Bearer bonds are owned by the bearer and have coupons attached to the bond so
the bearer can collect interest payments.

Debenture holders generally receive their promised payments only after all
secured debt holders have been paid.

Bond insurance guarantees that payment will be made to investors in the

event the issuer defaults. Bond insurers generally have a higher credit rating
than the bond issuer
Repayment of Federally insured mortgages is guaranteed by either the
Federal Housing Administration (FHA) or the Veterans Administration
(VA).

Repayment of Federally insured mortgages are originated by financial institutions, but is

guaranteed by either the Federal Housing Administration (FHA) or the Veterans
Administration (VA).

Bonds that are issued to finance a specific revenue-generating project and

whose payments are made from those revenues are called revenue bonds.

A bond that can be exchanged for another security of the issuing firm is
called a convertible bond

The holder of a stock warrant will exercise the warrant and buy the stock
when the market price of the stock is greater than the price specified in the
warrant.

The holder of a stock warrant will exercise the warrant and buy the stock
when the market price of the stock is greater than the price specified in tine
warrant.

For a Treasury note or bond, the accrued interest is calculated by multiplying

the semiannual coupon payment times actual days since last coupon divided
by actual days in coupon period

Treasury STRIPS allow investors to match their time preference for funds
with the maturity date of the STRIP security.

Because Treasury notes and bonds are free from default risk, they pay
relatively low rates of interest to investors.

Interest rates on all bonds are affected by inflation and the real risk-free rate
which is typically measured sing Treasury security rates.
Certain institutional investors are prohibited by state and federal law from
investing in bonds that are below investment grade called junk bonds due to
their risk.

Bond insurance increases the liquidity of bonds by making it easier to sell

them on the secondary market.

Municipal bonds are not free from default risk. Defaults on municipal bonds
tend to rise and fall with the economy.

By legally documenting the rights and obligations of all parties involved in a

bond issue; the bond indenture helps lower the risk and interest cost of the
bond issue.

Debentures which are junior in their rights to both secured debt and regular
debentures are called subordinated debentures

Treasury notes and bonds are backed by the full faith and credit of the U. S.
government and are considered to be free from default risk.

Treasury notes have original issue maturities from over 1 to10 years.

Coupon rates on U.S. Treasury notes and bonds are set at multiples of 0.125
percent when issued.

Municipal bonds backed by the full faith and credit of the issuer are called
general obligation bonds. Governments usually rely on tax collections
to make payments on these bonds.

Corporate bonds are long-term bonds with a minimum denomination of

$1000 and coupons that are paid semiannually

Some corporate bonds and most municipal bonds are serial bonds, meaning
that the bond issue contains many maturity dates with a portion of the
principal being paid off on each date.
Bonds that are issued to finance specific projects whose assets are pledged as
collateral for the bond issue are called mortgage bonds.

Many corporate bond issues include a call provision in their indentures

which allows the issuer to require the bond holder to sell the bond back to
the issuer at a set price above the par value of the bond.

Bonds are long-term debt obligations traded in capital markets.

A STRIP is a Treasury security in which semiannual coupon payments and

repayment of principal can be separated and sold as individual securities.

Municipal bonds are issued by state and local governments to fund a

temporary imbalance between expenditures and receipts, or to finance long-
term capital outlays.

Most corporate bonds are term bonds, meaning that the entire issue matures
on a single date.

Call provisions are unattractive to bond holders so callable bonds generally

have higher yields than non-callable bonds.

The spread measures the return premium a bond earns to compensate the
investor for default risk, liquidity risk and special bond provisions

Because mortgage bonds are backed with a claim on specific assets of the
firm, they are less risky and have lower yields than unsecured bonds.

The major purchasers of bond market securities (investors) are households

foreign investors, corporations, governments
Stock warrants are attached to bonds by risky issuers to make the bond more
attractive to investors and reduce the interest rate that must be paid.

Bond ratings provide investors with a ranking of the default risk of a bond
issue.
Bonds are usually called when interest rates fall so the issuer can gain by
reissuing new bonds with a lower interest rate.

True or false: In contrast to the expectations of the EMH, stock prices

generally take a few days to fully respond to earnings announcements.
TRUE

True or false: stock warrants may be detached from the underlying bond and
sold separately to another investor. TRUE

True or false: interest payments on municipal bonds are exempt from federal
income taxes and most state and local income taxes. TRUE

True or false: the collateral backing pass-through securities issued by private

mortgage issuers does not meet the standards of a government-related issuer.
TRUE

True or false: GNMA only supports pools of mortgage loans whose credit
risk is insured by one TRUE

True or false: the huge growth in sub-prime mortgages during the early
2000's was a not a major instigator for the 2008 financial crisis. FALSE

Alt-A mortgage borrowers are characterized by a lack of documentation

prime mortgage borrowers. and lower credit scores than prime mortgage
borrowers

The two major types of mortgage-backed securities that are created by

securitizing mortgages are pass-through securities collateralized mortgage
obligations.
A mortgage for which only interest payments are required for a period of
years, followed by a single principal repayment is called a balloon payment
mortgage.

To insure certain types of mortgages against default risk, the government

established the Veterans' Administration (VA) and the Federal Housing
Administration (FHA) during the 1930's.

To stabilize financial markets following the 9/11 terrorist attacks, the Federal
Reserve Bank lowered interest rates provided loans to non-bank Fi's such as
investment banks.

Unlike Ginnie Mae, Freddie Mac securitized both conventional mortgages

and FHA/VA insured mortgages
Unlike Ginnie Mae, Fannie Mac securitizes both conventional mortgages
and FHA/VA insured mortgages
)‫ كلهم صح‬Fannie ‫ أو‬Freddie ‫ سواء‬:‫(مالحظة‬

in 2016, over 60 percent of all residential mortgages were sold or securitized.

Sub-prime mortgages have a higher rate of default than prime mortgages and
thus have higher interest rates than prime mortgages.

Another distinctive characteristic of the mortgage market is that the issuers

of mortgage debt are often individuals.

If a piece of real estate is used to secure both a first and a second mortgage,
the second mortgage holder is paid after the first mortgage is paid off.

The financial crisis of 2008 hit European banks hard, especially in countries
with large investments in "toxic" mortgage backed securities, such as
Spain
United Kingdom
Ireland

A public record attached to the title of a property that serves as collateral for
a mortgage is called a lien

Once attached to a title a lien remains in place until the loan is paid off

While Ginnie Mae only guarantees the timing of payments on pass-through

securities issued by others, Fannie Mae or Freddie Mac creates and
guarantees payment of pass-through securities.

Freddie Mac also conducts a program by which it swaps mortgage-backed

securities with a thrift in exchange for original conforming mortgages.

Fannie Mae also conducts a program by which it swaps mortgage-backed

securities with a thrift in exchange for original conforming mortgages.

Fannie Mae engages in swaps transactions by which it swaps MBSs with a

bank or thrift for original mortgages.

Unlike with other mortgage-backed securities, the mortgages used as

collateral for mortgage backed bonds normally are not removed from the
security issuer's balance sheet. do not affect

Selling/securitizing mortgages reduces which of the following types of risks

of the originating financial institution? credit risk, interest rate risk, liquidity
risk
Ginnie Mae is a government-owned enterprise, but Fannie Mae and Freddie
Mac are publicly owned corporations referred to as government-sponsored
enterprises.

By removing risky assets from its balance sheet, a mortgage sale can reduce
a financial institution's credit risk
Securitization of mortgages allows mortgage issuers to separate credit risk
from the lending process

The advantage of a 15 year over a 30 year mortgage (fixed interest) to the

borrower is less total interest paid. The advantage to the lender is lower
interest rate risk

To limit the borrower's exposure to increasing interest rates, an adjustable

rate mortgage may place caps on the interest rate increase allowed each year
and during the life of the loan

A mortgage whose principal exceeds the conventional mortgage conforming

limit set by Fannie Mae and Freddie Mac is called a jumbo mortgage.

Securitization of mortgages has made it possible for mortgage originators to

move from a originate and hold banking model to a originate and sell
banking model.

A security that represents a fractional claim on the stream of interest and

principal payments made on a mortgage pool underlying the security is
called a pass-through mortgage security

Alt-A mortgages are not conforming mortgages, so they cannot be sold to

Fannie Mae or Freddie Mac.

The most common mortgage maturities are 15 and 30 year, with fixed
interest payments.
A mortgage whose interest rate is tied to some market interest rate or interest
rate index is
called an adjustable rate mortgage.
Over the life of the mortgage, the principal portion of the monthly payment
fully amortizes the loan, leaving a principal balance equal to zero at
maturity.

As a mortgage approaches maturity, the Interest portion of the monthly

payment decreases and the principal portion of the monthly payment
increases.

In 2006, two events occurred that acted as triggers for the financial crisis of
2008. They were: a decline in housing prices.
an increase in interest rates by the Fed.

Collateralized mortgage obligations (CMO) give investors greater control

over the maturity of the mortgage-backed securities they buy.

In theory, the higher the down payment made by the borrower, the less likely
it is that the borrower will default on the mortgage.

Because jumbo mortgages are larger than most mortgages and cannot be
sold to Fannie Mae or Freddie Mac, they are considered to be more risky and
have higher interest rates.

Interest rates on Alt-A mortgages tend to be between the rates on sub-prime

and prime mortgages.

A financial institution can remove recently originated mortgages from its

balance sheets by issuing mortgage-backed securities against those
mortgages. selling pools of mortgages on the secondary market.

Subprime mortgages are mortgage loans issued to individuals with poor

credit.
Subprime mortgages are mortgage loans issued to poor people. FALSE

To encourage continued expansion in the housing market and to provide

competition for Fannie Mae, the US government created Freddie Mac
(FHLMC) and Ginnie Mae (GNMA) in the late 1960's.

Two important characteristics of federally insured mortgage loans are

little or no down payment is required.
there is a maximum loan size limit.

The largest category of mortgage loan type by amount outstanding is

mortgages on one-to-four family dwellings.

The monthly payments of a fixed rate mortgage consist of interest and

principal payments which sum to a fixed monthly amount.

The portion of the purchase price of a property that must be paid by the
borrower at mortgage closing is called the down payment.

In the "originate and sell" model of mortgage markets, mortgage lenders

originate loans and sell them without recourse thus passing the long-term
credit risk to the loan purchaser.

Private mortgage pass-through securities must be registered with the SEC

and are rated by a ratings agency in a manner similar to corporate bonds.

Private mortgage pass-through issuers issue debt securities to raise funds to

purchase pools of non-conforming mortgages from financial institutions then
issues pass-through securities based on those mortgage pools which it sells
to outside investors.

Most mortgage loans are structured so each payment includes both interest
and principal, such that the principal is repaid in full by the maturity date.
We say that the mortgage is fully amortized
By replacing fixed-rate mortgage loans with cash or mortgage-backed
securities, a mortgage sale can reduce a financial institution's interest rate
risk

By replacing risky assets (mortgage loans) with cash or lower-risk assets, a

mortgage sale can reduce a financial institution's credit risk, liquidity risk
and interest rate risk, as well as regulatory costs such as the
cost of holding required capital.
cost of reserve requirements.

Freddie Mac issues bonds to raise funds to purchase pools of conforming

mortgages from primarily thrift institutions, then issues pass-through
securities based on those mortgage pools, which it sells to outside investors.

Fannie Mae issues bonds to raise funds to purchase pools of conforming

mortgages from financial institutions, then issues pass-through securities
based on those mortgage pools, which it sells to outside investors.

The type of mortgage-backed security in which a mortgage is used collateral

for a debt security is a mortgage-backed bond.

The mortgage pool underlying a mortgage pass-through security is actually

owned by a special purpose vehicle to which the mortgages are sold and
which issues the securities backed by the mortgages.

Due to the presence of a mortgage as pledged collateral for the bondholders,

mortgage backed bonds tend to have a bond rating of BBB or better.

Pass-through mortgage backed securities are subject to prepayment risk, an

issue which the collateralized mortgage obligation was designed to address.

One of the major functions of Ginnie Mae (GNMA) is to sponsor the

mortgage-backed security programs of private industry issuers.
One of the major issuers of bond market securities (borrowers) is
corporations, governments

The monthly interest and principal payments on the mortgage pool

underlying a pass-through security are collected by the mortgage originator
or third-party servicer for a fee.

Another of the major functions of Ginnie Mae (GNMA) is to provide timing

insurance guaranteeing the timely pass-through of interest and principal
payments to the security holder.

When interest rates are low borrowers prefer fixed rate mortgages and
lenders prefer adjustable rate mortgages.

As of March 2016, the total dollar amount of primary mortgages outstanding

was almost $14 trillion.

The risk that mortgage borrowers will repay or refinance their mortgages
early, thus removing their monthly payment cash flows from the underlying
mortgage backed security, is called prepayment risk

Unlike stocks and bonds, mortgages tend to be owned by a single investor.

To boost their earnings in the risky subprime mortgage market and take
advantage of low interest rates, mortgage lenders offered adjustable rate
mortgages with very low initial rates.

Subprime mortgages have a higher rate of default than prime mortgages and
thus have higher interest rates than prime mortgages.

Subprime mortgages were especially susceptible to default due to rising

interest rates since many of them were adjustable rate mortgages.

Mortgages differ from most other types of debt securities (except mortgage
bonds) in that mortgages are backed by real property.
The size or denomination of each primary mortgage is based on the
borrower's needs.

A mortgage backed bond uses mortgages not for their cash flows, but as
collateral for the bondholders.

Collateralized mortgage backed securities provide investors with a

guaranteed annual coupon and protection from prepayment risk by
repackaging the mortgage pool cash flows into tranches which can be sold
separately to investors.

Fixed rate Eurobonds pay interest annually a 360 day years.

(But floating-rate Eurobonds generally pay interest every six months on the
basis of a spread over some stated rate, usually the LIBOR rate)

The secondary market for Eurobonds is the NASDAQ. FALSE

The secondary market for Eurobonds is the over the counter market.

Eurobonds are generally bearer bonds and are traded in the over-the-
counter markets, mainly in London and Luxembourg.

With a registered bond the bond owner's identification information is

maintained electronically by the issuer and coupon payments are mailed or
wire transferred to the owner.

In the (originate and sell) model of mortgage markets the loan originator
passes-- the default risk of the loan on to the loan purchaser thus reducing
the originator's incentive to monitor the borrower's payments.

The bond indenture that requires that the issuer retire a portion of the bond
principal early over a number of years is called a sinking fund provision.
Rising interest rates and falling home prices triggered mortgage defaults
primarily in the subprime mortgage market.

Interest rates on second mortgages are generally higher than interest rates on
primary mortgages.

The random walk hypothesis is most related to which form of market

efficiency? Weak

According to the "random walk," which of the following is correct?

stock price changes are random

For mortgages the property purchased with the loan serves as collateral
backing the loan.

The principal amount of a second mortgage is limited by the borrower's

equity in the property.

A mortgage which locks in the borrower's interest rate over the life of the
mortgage regardless of how market rates change is called a fixed rate
mortgage.

The relationship between the down payment purchase price and the loan to
value ratio (LTV) is given by LTV loan amount/purchase price.

Jumbo mortgages are not conforming mortgages so they cannot be sold to

Fannie Mae or Freddie Mac.

An important characteristic of federally insured mortgage loans is that little

or no down payment is required

An important characteristics of federally insured mortgage loans is that

there is a maximum loan size limit

Moody's is one of the three major bond rating agencies

Standard & Poor's (S&P) is one of the three major bond rating agencies
Fitch Ratings is one of the three major bond rating agencies

The financing of nonpublic companies is referred to as private equity

An investor who wishes to specify a price at which a buy or sell order will be
triggered would use a stop order.

A constraint that prevents private equity fund managers from collecting

excessive compensation is a clawback provision.

A broker brings buyers and sellers together but does not maintain an
inventory

With best efforts underwriting the issuing firm assumes the risk that the
entire bond issue might not be sold

One way a financial institution can remove recently originated mortgages

from its balance sheets is by selling pools of mortgages on the secondary
market

One way a financial institution can remove recently originated mortgages

from its balance sheets is by issuing mortgage-backed securities against
those mortgages

The bond indenture that requires that the issuer retire a portion of the bond
principal early over a number of years is called a sinking fund provision

If the terms of repayment are not met by the bond issuer (borrower) the bond
holder (investor) has a claim on the assets of the bond issuer.

Borrowers whose down payment is less than 20 percent of the purchase price
are required to purchase private mortgage insurance
 A bond that can be exchanged for another security of the issuing firm is
called a convertible bond

The majority of Eurobonds are issued in dollars

In 2006 two events occurred that acted as triggers for the financial crisis of
2008. one of them is the increase in interest rates by the Fed

one of the two major types of mortgage-backed securities that are created by
securitizing mortgages is pass-through securities

one of the two major types of mortgage-backed securities that are created by
securitizing mortgages is collateralized mortgage obligations

In most years the currency in which the largest amount of fixed rate debt is
issued is dollar

Treasury notes and bonds are issued in minimum denominations 100 of or in

multiples of 100

The biggest issuers of debt in the global debt markets from 1994 through 2015
were corporations and financial institutions

In the (originate and sell) model of mortgage markets the loan originator passes
the default risk of the loan on the loan purchaser thus reducing the originator’s
incentive to monitor the borrower’s credit quality

The initial primary market sale for Corporate bonds occurs through which of the
following methods: a private placement to a small group of investors, a public
offering using an investment bank as underwriter.

Federally insured mortgages are originated by financial institutions and are

guaranteed by U.S government agencies.
The change is the yield to maturity on the Treasury note or bond using the bid
price in the calculation. (FALSE)

One of the major issuers of bond market securities (borrowers) is government.