6.Which of the following is most accurate regarding the investment characteristics of a principal-only (PO) mortgage strip?

A)   The lower the coupon the higher the investor's return.

B)   The faster the prepayments the higher the investor's return.

C)   The higher the coupon the higher the investor's return.

D)   The slower the prepayments the higher the investor's return.

7.Which of the following best describes a stripped mortgage-backed security (MBS)? A stripped MBS is a security:

A)   that provides no interest payments.

B)   that provides no principal payments.

C)   whose distribution of principal and interest has been altered from a pro rata distribution to an unequal distribution.

D)   whose distribution of principal and interest has been altered from an unequal distribution to a pro rata distribution.

8.Principal-only strips are:

A)   sold at par.

B)   sold at a considerable premium to par.

C)   could be sold at a discount or a premium, depending on economic conditions.

D)   sold at a considerable discount to par.

9.Interest only (IO) strip cash flow:

A)   starts out big and gets smaller over time.

B)   starts out small and gets bigger over time.

C)   are the same throughout the life of the security.

D)   have longer effective lives than principal only (PO) strips.

10.How is the price of a principal-only mortgage strip affected by declining mortgage rates in the market? The price of the principal-only strip:

A)   decreases.

B)   increases.

C)   is unaffected.

D)   may increase or decrease.

[此贴子已经被作者于2008-5-14 17:24:49编辑过]

6.Which of the following is most accurate regarding the investment characteristics of a principal-only (PO) mortgage strip?

A)   The lower the coupon the higher the investor's return.

B)   The faster the prepayments the higher the investor's return.

C)   The higher the coupon the higher the investor's return.

D)   The slower the prepayments the higher the investor's return.

The correct answer was B)

For a principal mortgage strip the investor does not receive interest but only the principal. Therefore, the sooner the investor receives the principal the higher the return.

7.Which of the following best describes a stripped mortgage-backed security (MBS)? A stripped MBS is a security:

A)   that provides no interest payments.

B)   that provides no principal payments.

C)   whose distribution of principal and interest has been altered from a pro rata distribution to an unequal distribution.

D)   whose distribution of principal and interest has been altered from an unequal distribution to a pro rata distribution.

The correct answer was C)

With a passthrough security, interest and principal payments generated by the underlying mortgage pool are allocated to the bondholders on a pro rata basis. This means that each passthrough certificate holder receives the same amount of interest and the same amount of principal. Stripped mortgage-backed securities differ in that principal and interest are not allocated on a pro rata basis.

8.Principal-only strips are:

A)   sold at par.

B)   sold at a considerable premium to par.

C)   could be sold at a discount or a premium, depending on economic conditions.

D)   sold at a considerable discount to par.

The correct answer was D)

Principal-only strips are sold at a considerable discount to par.

9.Interest only (IO) strip cash flow:

A)   starts out big and gets smaller over time.

B)   starts out small and gets bigger over time.

C)   are the same throughout the life of the security.

D)   have longer effective lives than principal only (PO) strips.

The correct answer was A)

IO strip cash flow starts out big and gets smaller over time.

10.How is the price of a principal-only mortgage strip affected by declining mortgage rates in the market? The price of the principal-only strip:

A)   decreases.

B)   increases.

C)   is unaffected.

D)   may increase or decrease.

The correct answer was B)

When mortgage rates decline, prepayments are expected to increase. Therefore, the principal-only strip investor gets payments sooner increasing the value of the PO.