How does a CMO alter the cash flow from mortgages so as to shift the prepayment risk across various classes of bondholders?
What will be an ideal response?
Prepayment risk refers to the risk associated with the early unscheduled return of principal on a fixed-income security. Collateralized mortgage obligations (CMOs) redirect cash flows from
a pass-through security to various bond classes making it possible to redistribute prepayment risk for investors who want to reduce their exposure to prepayment risk. Because the total prepayment risk of a pass-through will not be changed by altering the cash flows, other investors must be found who are willing to accept the unwanted prepayment risk.
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Which 2010 Act, passed to control risk in financial markets, is the biggest surge in economic regulation since the New Deal?
A. The Dodd-Frank Act B. The Expedited Funds Availability Act C. The Tax Extenders and Alternative Minimum Tax Relief Act D. The Congressional Accountability Act
The agent is not normally liable for wrongful acts of the principal, unless:
a. Her license is already restricted. b. The agent was unaware of the wrongful acts of the principal. c. The agent acquiesces in the sellers wrongful act. d. The agent mishandled the buyers deposit.