The Sum of the Market Values of All the Classes

question 45

Multiple Choice

The sum of the market values of all the classes of a CMO is greater than the total value of the GNMA pass-throughs backing the CMO because

• A)the CMO has less credit risk than the pass-through.
• B)CMO investors can choose their degree of prepayment protection.
• C)the government guarantees CMOs' performance.
• D)CMOs have a more favorable tax status than pass-throughs.
• E)CMO investors have no prepayment risk.