Which of the Following Statements Regarding Subprime Mortgages Is TRUE

question 12

Multiple Choice

Which of the following statements regarding subprime mortgages is TRUE?

• A) Subprime mortgages are not Ginnie Mae guaranteed, so CMO investors are exposed to default risk
• B) Subprime mortgages are not Ginnie Mae guaranteed, so securities backed by subprime mortgages cannot be issued
• C) CMOs backed by subprime mortgages cannot be used as collateral for CDOs
• D) Because of diversification, securities backed by subprime loans and no more risky than those back by prime loans

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Definitions:

Stakeholder

Anyone who potentially has a claim on a firm.

Stock Ownership

Holding shares in a company, which represent a portion of the company's capital and give certain rights to the shareholder.

Voting Rights

The ability of shareholders to vote on corporate matters, such as the election of the board of directors.

Management Control

Refers to the processes, policies, and procedures that are put in place by an organization's management to ensure that its goals and objectives are achieved efficiently and effectively.