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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.
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.
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.