Compare a CMO with A, B, Z to a CMO that has the same tranches but is backed by a larger pool of mortgages (and therefore has a residual). In a CMO with aresidual:Tranche A has a shorter duration and less inflation/interest rate riskTranche 8 has a shorter duration and more inflation/interest rate riskTranche B has a longer duration and more inflation/interest rate riskTranche Z has more inflation/interest rate riskTranche Z has less inflation/interest rate risk

A Collateralized Mortgage Obligation (CMO) is a type of complex financial instrument that falls…

Compare a CMO with A, B, Z to a CMO that has the same tranches but is backed by a larger pool of mortgages (and therefore has a residual). In a CMO with a residual: O Tranche A has a shorter duration and less inflationvinterest rate risk O Tranche B has a shorter duration and more inflation/interest rate risk Tranche B has a longer duration and more inflation interest rate risk Tranche 2 has more inflation/interest rate risk Tranche Z has less inflation/interest rate risk

Compare a CMO with A, B, Z to a CMO that has the same tranches but is backed by a larger pool of mortgages (and therefore has a residual). In a CMO with a residual: O Tranche A has a shorter duration and less inflationvinterest rate risk O Tranche B has a shorter duration and more inflation/interest rate risk Tranche B has a longer duration and more inflation interest rate risk Tranche 2 has more inflation/interest rate risk Tranche Z has less inflation/interest rate risk

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

When all else is equal, interest rate risk is smaller with: a) a longer original maturity. b) a shorter remaining maturity. c)a longer remaining maturity d) a shorter original maturity.
The additional debt capacity depends on the interest rate and /or maturity term. If interest rate is fixed, the longer maturity will _______ the additional debt capacity.
Which of the following statements is true? Select one:a)Short-term bonds have greater interest rate risk than do long-term bonds.b)Interest rate risk is highest during periods of high interest rates.c)Long-term bonds have greater interest rate risk than do short-term bonds.d)All bonds have equal interest rate risk.
Which of the following claims is true?a. Long-term bonds have lower interest rate risk than short-term bonds but higher reinvestment rate risk.b. Long-term bonds have higher interest rate exposure and lower reinvestment risk than short-term bonds.c. As compared to coupon-bearing bonds, zero coupon bonds have higher interest rate exposure but lower reinvestment rate risk.d. As interest rates rise, all bond prices rise, although the increase would be greatest for bonds with lower interest rate danger.e. One drawback to zero coupon bonds is that you do not have to incur interest on them before you sell the bond or it matures.
The two main factors that determine the market interest rate on a loan or bond are: Length of time .and Risk True O False O التالی و السابق
Which of the following statement is (are) TRUE of collateralized loan obligation (CLO)? A: A CLO pools a group of loans and creates multiple tranches with different levels of risk B: The less risky tranches in a CLO have a lower pay-off (i.e. lower coupons) C: A tranch of a CLO can have a high credit rating even though the underlying loans in a CLO are risky D: All of the Above Please answer fast i give you upvote.
Which of the following statements is TRUE regarding bonds? O A. At maturity, lenders repay a bond's par value to borrowers. O B. Ceteris paribus, bonds with higher YTMS would have higher prices. c. Borrowers purchase bonds. O D. If you anticipate a decline in market interest rates, you should purchase long-term zero-coupon bonds.
Select the correct statement: The value of a premium bond will fall over time, if cost of debt (rd) decreases The value of a discount bond will fall over time, if cost of debt (rd) does not change The value of a discount bond will increase ove time, if cost of debt (rd) does not change The value of a premium bond will increase over time, if cost of debt (rd) does not change
Choose from liquidity premium, taxability premium, default risk premium, maturity premium. 1.For a long term bond, bondholders demand a higher yield as compensation is called?2.When a bond has poor credit rating, bondholders demand a higher yield as compensation is called?3.When a bond has less frequent trading, bondholders demand a higher yield as compensation is called?
When the default risk is high, ___. the debtor charges high interest the debtor earns more the creditor earns less the creditor charges high interest Please answer immediately thanks :)
Which of the following is FALSE regarding ARM loans? ○ Lenders only originate ARMs if the expected benefit from shifting interest rate risk is greater than the increased risk of borrower default caused by adjusting composite rates none of the answer choices is FALSE ARMs with shorter term index means increased risk to borrower because shorter term index rates have more volatility ARMs with more frequent adjustments to the composite rate are more risky to lenders than ARMs with less frequent adjustments
An increase in interest rates in the bond market reduces adverse selection problems. Select one: O False O True

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