Series 7, Chapter 9 - Government Securities

Front 1

What are the three government securities?

Back 1

Treasury Bills
Treasury Notes
Treasury Bonds

Front 2

Characteristics of Treasury Bills

Back 2

-Sold at a discount
-The discount is the yield
- Short term maturities (1 month, 3 month, 6 month, and 12 months - never more than 1 year)
-Issued in denominations of $100*

Front 3

Characteristics of Treasury Notes

Back 3

-Have a fixed coupon (or interest) rate
-Pays interest semi-annually
-Sold in Denominations of $1,000
- 2 - 10 year maturities
-Never have a call option

Front 4

Characteristics of Treasury Bonds

Back 4

-Have a fixed coupon (or interest) rate
-Pays interest semi-annually
-Sold in Denominations of $1,000
-10 - 30 year maturities
- Can be issued with a call option
- 30 year bond is AKA "THE LONG BOND"

Front 5

Name and describe the three parties in T-Bill auctions

Back 5

Federal Reserve - Sells the T-Bills

Primary Dealers - Brokerages and Banks recognized by the Federal Reserve

Public - Normal people

Front 6

How often do T-Bills go to auction?

(2 separate answers)

Back 6

Three and six month T-bills are auctioned off weekly

Year long T-Bills are auctioned monthly

Front 7

During a T-Bill Auction, who gets to act first Who acts after that?

Back 7

During a T-Bill auction, non-competitive orders are filled first. This means the public gets the first crack. Afterwards Primary dealers (competitive) bid on the T-Bills

Front 8

What is "competitive tender price?"

Back 8

The competitive tender price is the AVERAGE price of all the competitive bids.

Front 9

What are the two trade ways for Gov't Securities?

(Hint think T-Bills)

Back 9

Government Securities are sold T+3.

The one exception is T-Bills sold at AUCTION. That is T+1

Front 10

What's different about a T-Bill's bid and ask (quote)? Why?

Back 10

Bid is higher than ask.
This is because the quote is actually quoting the DISCOUNT, not the PRICE. Subtract the discount from the par value to get the real picture.

Front 11

Basis Points on a T-Bill are equal to?

Back 11

1 basis point on a T-BIll equals:

$100 - 12 month
$50 - 6 month
$25 - 3 month

Front 12

T-Bills are risk free because...?

Back 12

They are short term and guaranteed by the federal governement

Front 13

TIPS are auctioned in which months?

Back 13

July
October
January

Front 14

Which government securities preserve the investor's capital BEST?

Back 14

TIPS! Because the interest rate is adjusted for inflation by tying it to the CPI - Consumer Price Index

Front 15

How to determine days in a month

Back 15

Put your fists together.
Every knuckle has 31 days. (JULY AND AUG together)

Front 16

Fanny Mae, Ginnie Mae, and Freddy Mac (all mortgage government agencies) have interest income and it is taxable at which level(s)?

Back 16

The interest income is fully taxable at the federal, state, and local levels. FULLY TAXABLE.

Front 17

Sallie Mae has nothing to do with (2 things)

Sallie Mae has to do with?

Back 17

Sallie Mae has nothing to do with mortgages or options.

Sallie Mae is concerned with Student Loans

Front 18

Each Federal Farm District contains 3 banks:

Back 18

Federal Land Bank
Federal Intermediate Credit Bank
Bank for Cooperatives

Front 19

Federal Intermediate Credit Banks cover what?

Back 19

Cover farm operating expenses

Front 20

What are STRIPS?
What is the only underlying security of STRIPS?

Back 20

Separate Trading of Registered Interest and Principal Securities

The underlying security is Treasury Bonds