Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Collateralized Mortgage Obligations (CMOs)
CMOs retain many of the yield and credit quality advantages of pass-throughs, while eliminating some of the less desirable elements of the traditional mortgage-backed security. CMOs are bonds or debt obligations issued by mortgage originators by offering whole loan mortgages or mortgage pass-through securities as collateral. The cash flows generated by the assets in the collateral pool are first used for paying interest and then pay principal to the CMO bondholders.
The major difference between traditional pass-throughs and CMOs lies in the principal payment process. In case of pass-through securities, each investor receives a pro rata distribution of any principal and interest payments (net of servicing fees) made by the homeowner. Since mortgages are self-liquidating assets, the holder of a pass-through receives some return of principal each month. Until all the mortgages in the pool are finally retired, complete return of principal and the final maturity of the pass-through does not occur. Thus, a large difference between average life and final maturity is created and there is a great deal of uncertainty with regard to timing of principal return under a pass-through security.
CMOs avoid the problems underlying pass-throughs by issuing bonds in groups and each group is referred to as 'tranche'. This security allows distribution of various risks among the different kinds of bond holders. Further, these securities also satisfy the asset/liability requirements of the institutional investors.
The CMO structure offers issuers a flexible tool with which to design tranches to meet investor needs and respond to market conditions. There are a wide range of CMO tranches designed to reduce an investor's exposure to prepayment risk. The tranche types are defined according to general characteristics; however, investors should carefully evaluate how the security is likely to perform under a range of economic assumptions. Let us go through some of the major ones:
Question 1: i) Activity Based Costing is better than the Traditional Product Costing. Discuss, by making use of empirical evidence ii) The replacement of cash-based accounti
Q. Criticism of Wealth Maximization? i) The objective of wealth maximization is not, necessarily, socially desirable. ii) There is some controversy whether the objective of
identify service marketing mix of facebook
In 1952, to provide equilibrium between assets and liabilities of insurance companies, Frank Redington, an English actuary, proposed interest rate immunization te
what is amount of cash dividend if investor buys share of 100 at premium of 400.
Enumerate the Securities and Investment Analysis Purchase of bonds, stocks and othersecurities involve analysis and techniques which are highly specialized. An investorshoul
Explain the distinction in the translation process among the monetary/nonmonetary method and the temporal method. Answer: Within the monetary or nonmonetary method, every mone
Evaluate the importance of leverage of financial management on a small scale company.
Suppose the supply curve for a good is totally inelastic. If the government imposed a price ceiling below the market-clearing level, would a deadweight loss result? Explain.
Question : (a) A company wants to purchase a plant for its expanding operations. The desired plant is available at Rs 300,000 in cash. Alternatively, the company has the option
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd