Choose the best response to each question
- 1. Which of the following are characteristics of CMOs?
- I. They offer one coupon rate.
- II. They offer a range of coupon rates.
- III. They offer one maturity date.
- IV. They offer a range of maturity dates.
- A. I and III
- B. II and III
- C. I and IV
- D. II and IV
- 2. Which of the following is true of GSEs?
- A. They must pay state and local taxes.
- B. They are overseen by the SEC.
- C. They have a line of credit greater than $2 billion.
- D. They are publicly owned.
- 3. Which of the following is not true of MBSs?
- A. They are subject to prepayment risk, which is more likely when interest rates rise.
- B. They pay varying monthly interest payments.
- C. They are known as pass-through securities.
- D. They are subject to extension risk, which means the investor gets his money back more slowly than expected.
- 1. D. Traditional MBSs only have one coupon rate and one maturity date. However, because their investment pools are sliced into tranches, CMOs offer a range of coupon rates and maturity dates. The separate tranches also help to lower prepayment risk for investors.
- 2. C. GSEs are c