Entity-reissued as collateralized mortgage obligation

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Reference no: EM131851724

1. Assume that Ginnie Mae sponsored pass through securities have been acquired by another entity (e.g., Freddie Mac) and reissued as a Collateralized Mortgage Obligation or CMO. In a CMO the respective tranches:

A. Promise a different return (coupon) to investors

B. The Ginnie Mae sponsored pass throughs have substantial credit risk which now becomes reissued through the CMO.

C. Carries a different maturity or duration exposure

D. A and C above

E. All of the above

2. Firm increases its debt ratio from 50% to 60%. In the absence of taxes, an investor can offset the change in capital structure by

selling part of her holding and buying debt.

borrowing money and investing it in the firm’s equity.

holding a diversified portfolio.

switching her investment to convertible bonds.

Reference no: EM131851724

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