Mortgage-Backed Bonds (MBB) Differ from Pass-Throughs and Collateralised Mortgage Obligations

question 3

Multiple Choice

Mortgage-backed bonds (MBB) differ from pass-throughs and collateralised mortgage obligations (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.

Explain the trade-offs faced by individuals and societies.

Define and distinguish between different economic terminologies and their applications.

Discuss the role of government intervention in correcting market failures.

Understand the difference between a centrally planned economy and a market economy.

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Definitions:

Z-statistic

A type of standard score that indicates how many standard deviations an element is from the mean, used in significance testing.

Significance Level

A threshold for determining whether a p-value indicates a statistically significant result, usually set at 0.05 (5%).

Nonparametric Tests

Statistical tests that do not assume a specific distribution for the data, making them suitable for analyzing ordinal data or when the assumptions for parametric tests are not met.

Nonparametric Statistical Methods

Statistical methods that do not assume a specific distribution for the data, often used when data doesn't meet the assumptions required for parametric tests.