Collateralized Mortgage Obligations (CMos) Are Designed To

question 8

Multiple Choice

Collateralized mortgage obligations (CMos) are designed to:

• A) eliminate contraction risk in support tranches.
• B) distribute prepayment risk to various tranches.
• C) eliminate extension risk in planned amortization tranches.

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Definitions:

World War II

A global conflict that lasted from 1939 to 1945, involving most of the world's nations, including all of the great powers, eventually forming two opposing military alliances: the Allies and the Axis.

Nominal Interest Rate

The interest rate expressed in dollars of current value (that is, not adjusted for inflation) as a percentage of the amount loaned; the interest rate specified on the loan agreement.

Expected Inflation

The rate at which the general level of prices for goods and services is rising, as anticipated by consumers and businesses.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the real yield to investors.