Mortgage-Backed Bonds (MBB) Differ from Pass-Throughs and CMOs in Which

question 33

Multiple Choice

Mortgage-backed bonds (MBB) differ from pass-throughs and CMOs in which of the following ways?

• A)The MBB bondholders have a junior claim to assets of the FI.
• B)There is no direct link between the cash flow on the mortgages backing the bond and the interest and principal payments on the MBB.
• C)The assets backing a MBB issue are normally removed from the balance sheet of the FI.
• D)Tranches of a MBB are treated equally with respect to prepayments on mortgages backing the bond issue.
• E)None of these.

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Definitions:

Interest Rates

Interest rates are the cost of borrowing money expressed as a percentage of the total amount loaned, influencing economic activity by affecting spending and saving behaviors.

Premium

The amount paid for an insurance policy, or the extra cost for financial instruments or securities about their nominal or face value.

Duration

A measurement of the sensitivity of the price of a bond or other debt investment to changes in interest rates, typically expressed in years.

Term To Maturity

The length of time until the principal amount of a bond or other debt instrument is due to be repaid.