Securities Licensing Exam - Chapter 8

Man, this chapter took even longer than Saturday's Chapter 7.

This was about agency debt and it made me mad, too. The thought occurred to me that perhaps the reason certain types of instruments were upsetting to me is because they are bad investments.

Here's the ugly truth- got 9/15 right. missed three by over-analyzing. changed my answers when i should have gone w/my gut, which was the right answer. The questions and subject matter I missed:

#1, 5, 6, 8, 13, 14.
US govt securities support farming, education, housing AND foreign trade. I didn't think foreign trade was included; which the govt guarantees FSA (farm service agency), VA and FHA loans. For w/e reason, I wasn't certain about the FSA loan; Bonds issued by FHLBS are NOT callable. that one i just flat missed; GNMA loan income is not exempt from local and state taxes. i knew better on this, I just opted to go with GNMA is a part of the federal government, because i thought it was a trick ?; straight pass through's are backed by the real property underlying the debt, which I knew...I changed my answer to guarantee of the issuing agency; and finally, the greatest risk of pass through certs is the repayment risk, I had chosen interest rates which fuel the risk one way or another, not directly involved in the transaction risk.

That's it. I am glad to move on from this one, although given my score I most certainly will have to read it again. booo. Also, I want to reiterate to study and memorize the YTM, convertible ratio formulas etc. etc.

One good thing about chapter 8 is the PSA (Public Service Association) model. I like that Freddie Mac came up with a formula that accurately predicts the way similar pools of mortgages (i.e. same interest rate same maturity date) behave and when they will refinance etc. I dislike that they used that model to issue CMO's, PACs and TACs. I don't like the ideas of those at all.

The only type of pass-through certificate I think is even sound is GNMA, solely because it is backed by the government. That is not a recommendation, however, just a talking point about the chapter.

God bless.