Unit 8 Part 2 Quiz

A mortgage pass-through bond (MPTB) can be described by all of the following except:
an MPTB can be viewed as a mortgage-backed bond with the pass-through of principal and prepayment features of a mortgage pass-through security.
all of the above are true.
an MPTB represents an undivided equity ownership interest in a mortgage pool.
most MPTBs are based on residential mortgage pools and are generally overcollateralized.
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A mortgage pass-through bond (MPTB) can be described by all of the following except:
an MPTB can be viewed as a mortgage-backed bond with the pass-through of principal and prepayment features of a mortgage pass-through security.
all of the above are true.
an MPTB represents an undivided equity ownership interest in a mortgage pool.
most MPTBs are based on residential mortgage pools and are generally overcollateralized.
an MPTB represents an undivided equity ownership interest in a mortgage pool.
In comparison to the mortgage securities we have previously discussed, the unique characteristic of a CMO is that:
the CMO is a pay-through in which all amortization and prepayments flow through to investors
the CMO mortgage pool is not overcollateralized.
CMOs are issued in multiple security classes.
the CMO issuer retains the ownership of the underlying mortgage pool.
CMOs are issued in multiple security classes.
For which of the following investments is the date of maturity known?
CMOs
MBBs
MPTs
MPTBs
MBBs
For which of the following investments does the issuer bear prepayment risk?
CMOs
MPTs
MBBs
MPTBs
MBBs
Which of the following is NOT characteristic of commercial-backed mortgage securities?
The underlying mortgage pool represents a variety of different property types (retail, multifamily, etc.) and a specific geographical area
The underlying mortgages have usually been outstanding for several years
One of the primary issuers of such securities are insurance companies
In general, the underlying mortgage pool for such securities contain fewer mortgages than are included in residential-backed mortgage pools
The underlying mortgage pool represents a variety of different property types (retail, multifamily, etc.) and a specific geographical area
REMICs were created in order to avoid taxes:
at the investor level.
none of the above.
at the entity level.
entirely.
at the entity level.
Duration, as referred to in the chapter, is:
a measure of the weighted-average time required before all principal and interest is received on an investment.
a measure of the extent to which different investments expose an investor to interest rate risk.
all of the above.
a measure that takes into account both the size of cash flows and the timing of their receipt.
a measure of the extent to which different investments expose an investor to interest rate risk.
The residual position in the CMO offering is considered which kind of position?
equity
primary
may be debt or equity
debt
equity
A calamity call allows the issuer to recall all securities for a specified time after issue in the event that all but which of the following occurs?
Interest rates decline sharply.
Reinvestment rates are below what was promised to investors.
Prepayments accelerate.
Investors want to cash out their positions.
Investors want to cash out their positions.
Which of the following is FALSE concerning a planned amortization class (PAC) tranche?
It receive variable payments. .
Payments are received over predetermined period of time.
It has the greatest degree of cash flow certainty.
Payments are received under a range of prepayment scenarios.
It receive variable payments. .
The total interest collected from the pool will be ________ if prepayment accelerates; therefore, the dollar spread between interest inflow and outflow becomes ________. lower, wider higher, smaller higher, wider lower, smallerlower, smallerThe CMO ______________ assumes the prepayment risk of the underlying mortgages, although the CMO modifies how the risk is allocated. there is no prepayment risk for either the issuer or investor with a CMO investor issuer issuer and investor share equallyinvestorIn comparison to mortgage pass-though securities, CMOs attract a _______________________________ because, by prioritizing cash flows, they can offer more specific maturities. smaller class of less wealthy investors smaller class of more wealthy investors broader class of investors narrower class of investorsbroader class of investorsA CMO __________________________________________________ prepayment risk. by its design never eliminates more than 10% of does not completely eliminate completely eliminates by its design always eliminates at least 90% ofdoes not completely eliminateWhich of the following is NOT a CMO security type? inverse floater repeat floater IO tranche Z trancherepeat floaterFrom the issuer's perspective, the use of MBBs and MPTBs should be viewed as a method of __________ financing. debt hybrid unsecured equitydebtCash flows remaining after all CMO tranches have been paid off are referred to as _______________ and are ______________ cash flows. REMICs, debt the residual, equity the residual, debt REMICs, equityIn a CMO, __________________ retain(s) residual cash flows remaining after all cash payments are made to each tranche of securities. the issuer and investors divide the residual cash flows evenly the investors the issuer the issuer and investors divide the residual cash flows, with the investors taking at least 75%the issuerWhich of the following does NOT increase the noncredit risks of CDOs? Higher correlation and liquidity Collateral management risk Certainty in average life of CDO tranches None of the aboveCertainty in average life of CDO tranchesA tranche that has a coupon interest rate that adjusts in the opposite direction to its index is referred to as: Upside-down floater tranche Backwards floater tranche Reverse floater tranche Inverse floater trancheInverse floater tranche