CMO (Collateralised Mortgage Obligation) is described as a set of restructured components typically made out of a MBS. Which option lists CMO?

CMO (Collateralised Mortgage Obligation) is described as a set of restructured components typically made out of a MBS. Which option lists CMO?

• A. CMO
• B. ABS
• C. MBS
• D. Government bonds

Answer: (A)

A CMO is a specialized asset-backed security created from mortgage-backed securities and split into tranches to reallocate cash flows and manage prepayment risk. The description is pointing to the instrument by its own name, so the option that lists the CMO is the correct one. CMOs are a form of ABS built from MBS, whereas MBS refers to the underlying mortgage pool, and government bonds are a separate sovereign debt category.

A CMO is a specialized asset-backed security created from mortgage-backed securities and split into tranches to reallocate cash flows and manage prepayment risk. The description is pointing to the instrument by its own name, so the option that lists the CMO is the correct one. CMOs are a form of ABS built from MBS, whereas MBS refers to the underlying mortgage pool, and government bonds are a separate sovereign debt category.