Fixed Income

CFA Level I Fixed Income
#1

Which of the following is most likely an advantage of collateralized mortgage obligations (CMOs)? CMOs can

  1. eliminate prepayment risk.
  2. be created directly from a pool of mortgage loans.
  3. meet the asset/liability requirements of institutional investors.

C is correct.

Using CMOs, securities can be created to closely satisfy the asset/liability needs of institutional investors. The creation of a CMO cannot eliminate prepayment risk; it can only distribute the various forms of this risk among various classes of bondholders. The collateral of CMOs are mortgage-related products, not the mortgages themselves.

CMO is created from a pool of mortgage loans by MBS. I thought the ans was B. Can anyone explain why not B

#2

Had it been a Mortgage pass through security, the option ‘B’ is correct.

#3

Where’d you get the question?

Advantages compared to what?

#4

Bookshelf

#5

Advantages compared to what?