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Bonds 109: US Government Agency Bonds

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1.
When many mortgages in an investment pool are prepaid, the investor may face the problem of _______.
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Reinvesting the money in another security that provides a lower interest rate. When a number of mortgages in the pool are prepaid, the investor receives payments of interest and principal sooner than planned. This can be a problem if the government agency bond matures at a time when interest rates on similar investments are low.
2.
When you invest in a Ginnie Mae bond, you usually receive a monthly payment including _______.
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Interest and principal. Ginnie Mae investors usually receive a monthly payment that includes both interest and a portion of the outstanding principal. Or they may receive monthly payments including only interest, and then receive the principal back when the mortgage matures.
3.
Compared to Fannie Mae, Freddie Mac _______.
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Is growing faster. Freddie Mac is currently growing faster, partly due to its smaller market share.
4.
Of the several risks that US government agency bond investors must consider, perhaps the least likely is ______.
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Risk of default. Government agency bonds are implicitly backed by the faith and credit of the US government.
5.
One advantage of government agency bonds is _______.
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Higher return potential than that of Treasury securities. Agency bonds generally offer higher returns than Treasury securities do, along with higher volatility as the market for these securities responds to changes in mortgage rates.