FIN 2302: Bond notes, security business, and time value

These agencies provide a valuable service to the financial industry called Securitization.

• minimize the interest rate risk and to bring the million dollars back to the bank to make more loans.

• As people make their mortgage payments, the money passes to the bondholder (principal and interest).

• this is the act of making an investment security out of something that isn't; and in doing so, they bring liquidity to financial firms.

• They pay a higher rate of interest than many other debt securities, have 30-year terms and are backed by a Federal Agency (FNMA).

The Federal National Mortgage Association (FNMA, called "Fannie Mae")

• The bank will immediately sell the loans to minimize the interest rate risk and to bring the million dollars back to the bank to make more loans.

• They pay a higher rate of interest than many other debt securities, have 30-year terms and are backed by a Federal Agency (FNMA).

• These agencies provide a valuable service to the financial industry called Securitization.

• The risk that interest rates will rise, moving the rate on short-term deposits up beyond the rate the mortgage loan is earning.

Mortgage Backed Securities.

• The bank uses federal agencies to minimize the interest rate risk that is inherent in mortgage lending.

• The bank is concerned about interest rate risk.

• This is the act of making an investment security out of something that isn't; and in doing so, they bring liquidity to financial firms.

• They pay a higher rate of interest than many other debt securities, have 30-year terms and are backed by a Federal Agency (FNMA).

Federal agencies

• The Federal National Mortgage Association (FNMA, called "Fannie Mae")

• The Government National Mortgage Association (GNMA, Ginnie Mae)

• The Student Loan Marketing Association (SLMA, Sallie Mae)

• All of them

The Student Loan Marketing Association (SLMA, Sallie Mae)

• who securitizes mortgages, just like Fannie Mae.

• who securitizes government guaranteed student loans.

• we called this the Savings & Loan crises in the 1980's.

• The bank is concerned about interest rate risk.

The Government National Mortgage Association (GNMA, Ginnie Mae)

• who securitizes mortgages, just like Fannie Mae.

• The hypothetical yield curve is a "line-of-best-fit" drawn through different interest-maturity combinations.

• There is a 3.15% spread between the two. The larger the spread, the steeper the curve

• who securitizes government guaranteed student loans.

The __________ yield curve is a "line-of-best-fit" drawn through different interest-maturity combinations.

The Yield Curve (or the "Term Structure of Interest Rates")

• they do not pre-pay their mortgages but hold them for as long as they can.

• who securitizes government guaranteed student loans.

• is a graphical relationship of interest rates and terms of maturity for fixed income products.

A "typical, normal" yield curve is a graph that is _________, to the ______

• upward sloping; right

• Right side; left side

• downward sloping; left

Whenever the US Government borrows money, the bonds, notes and bills are

• auctioned usually to large banks and brokerage firms.

• now taking the interest rate risk.

• As people make their mortgage payments, the money passes to the bondholder (principal and interest).