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Bonds 109: US Government Agency Bonds

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1.
One way you can purchase your first Ginnie Mae bond for less than $25,000 is _______.
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On the secondary market. You sometimes can buy Ginnie Maes that are selling for less than $25,000 on the secondary market if their interest rates are low compared to more recent issues or if their principals have been substantially reduced.
2.
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.
3.
Freddie Mac bonds are perceived as safer than Ginnie Mae bonds.
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False. Ginnie Mae securities are perceived as safer from default than Freddie Macs.
4.
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.
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.