Which of the following is most likely an advantage of collateralized mortgage obligations (CMOs)? CMOs can
eliminate prepayment risk.
be created directly from a pool of mortgage loans.
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
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