SIE practice questionmediumCMOs
Which risk is typically higher in CMOs than traditional bonds?
- ADefault risk
- BInflation risk
- CEvent risk
- DPrepayment risk✓ Correct answer
Explanation
Why D — Prepayment risk
CMOs face elevated prepayment risk due to mortgage payoffs. Their default risk may be low (especially for agency-backed), and inflation/event risks are not unique to CMOs.
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