Consider the following statements:
- Statement 1: A pool of mortgage loans serves as collateral for collateralized mortgage obligations (CMOs).
- Statement 2: In a sequential-pay CMO, the tranche with the longest average life entails the least extension risk.
Which of the following is most likely?
The correct answer is both statements are incorrect. However, the explanation states sequential-pay CMOs have the greatest protection from contraction risk and has the most extension risk.
Is Wiley contradicting itself?