SIE practice questionmediumCMOs
Which risk is most associated with Collateralized Mortgage Obligations (CMOs)?
- AInflation risk
- BCredit risk
- CPrepayment risk✓ Correct answer
- DLiquidity risk
Explanation
Why C — Prepayment risk
CMOs are most subject to prepayment risk, which occurs when borrowers pay off their mortgages early, affecting cash flows. Credit risk is low for government-backed CMOs, and while inflation and liquidity risks exist, prepayment is the primary concern.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Debt Securities questions
- Which bond rating represents the highest credit quality?
- Which of the following is NOT a government-sponsored enterprise (GSE) that issues agency bonds?
- A 6% coupon bond with a current market price of $900 has a current yield of:
- Which U.S. Treasury security has maturities ranging from 2 to 10 years and pays semiannual interest?
- An investor buys a 5% bond at 95, with 5 years to maturity. Which yield will be highest?
- A city issues bonds backed by the taxing power of the municipality. What type of bond is this?
- All else equal, which bond will have the longest duration?
- Which of the following is a feature commonly associated with corporate bonds?