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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.
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.
3.
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.
4.
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.
5.
Ginnie Mae, Fannie Mae, and Freddie Mac all combine mortgages into pools and then issue units in these pools to investors as bonds.
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True. Ginnie Mae, Fannie Mae, and Freddie Mac all buy mortgages from financial institutions that made the loans and group them into pools. They then sell units in these pools to investors by issuing bonds through various financial institutions.