SIE Chapter 5 Questions and Answers
Rated A+
What are the key features of U.S. Treasury securities?
These securities are issued by the federal government, known for their high liquidity, lack
of credit risk, and full backing by the government. They are considered direct obligations of the
...
1 SIE Chapter 5 Questions and Answers Rated A+ What are the key features of U.S. Treasury securities? ✔✔These securities are issued by the federal government, known for their high liquidity, lack of credit risk, and full backing by the government. They are considered direct obligations of the U.S. Treasury. How is the interest earned on U.S. Treasury securities taxed? ✔✔The interest income is subject only to federal taxation and is not liable for state or local taxes. What are the main categories of Treasury securities? ✔✔The primary types include Treasury Bills, Treasury Notes, and Treasury Bonds. What distinguishes Treasury Bonds and Treasury Notes from other types of securities? ✔✔Both are interest bearing and provide semi annual interest payments to holders. What does it mean for a security to be 'marketable'? 2 ✔✔A marketable security is one that can be easily bought or sold in the secondary market. How are Treasury Bills issued and redeemed? ✔✔Treasury Bills are issued at a discount to their face value and redeemed at their full face value upon maturity. What does 'Book Entry' mean in the context of securities? ✔✔It refers to a system where no physical certificate is issued; instead, ownership is recorded electronically. What is 'accrued interest'? ✔✔Accrued interest represents the interest that has accumulated but remains unpaid, calculated based on the number of days over a 365 day year. How are Treasury Bills quoted differently from other securities? ✔✔Treasury Bills are quoted based on their discount yield, where the bid price is lower than the ask price. What are Treasury Inflation Protected Securities (TIPS) and what do they offer? 3 ✔✔TIPS are designed to protect against inflation. They provide a fixed interest rate paid semiannually and adjust the principal based on changes in the Consumer Price Index (CPI). What will you receive at maturity if you hold TIPS? ✔✔At maturity, you will receive the higher amount between the original face value or the adjusted princ ipal based on inflation. What are T STRIPS and how are they created? ✔✔TSTRIPS are not directly issued by the government but are created in the secondary market by separating a Treasury security into individual components for each payment, such as interest or principal, and are sold as zero coupon securities with various maturities. What defines a competitive bid in Treasury securities auctions? ✔✔A competitive bid specifies both the price and quantity of securities desired and is typ ically submitted by large financial institutions. What is a non competitive bid and how does it work?
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