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Bonds 109: US Government Agency Bonds

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1.
Fannie Mae and Freddie Mac are former US government agencies that are now privately held companies.
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False. Fannie Mae and Freddie Mac are former US government agencies that are now publicly listed companies.
2.
The extension risk increases the amount of money the investor has to buy other securities at a time of high interest rates.
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False. The extension risk reduces the amount of money the investor has to buy other securities at a time of high interest rates, as the investor's bond pays more slowly when payment of the home mortgages in the pool is extended longer than planned.
3.
Homeowners are least likely to prepay their mortgages when they _______.
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Take out a home equity loan. Homeowners may prepay their mortgages when they sell their homes, refinance themespecially if mortgage interests rates fallor when they simply decide to pay down the principal.
4.
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.
5.
The minimum initial investment in a Ginnie Mae bond is _______.
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$25,000. The minimum investment for a Ginnie Mae is generally $25,000, although you sometimes can buy them for less than $25,000 on the secondary market, as well as through shares in mutual funds or investment trusts that invest in Ginnie Maes.