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:
Other than zero coupon bonds, all fixed income securities make periodic payments in the form of coupon interest. This coupon interest can be rei
The director of capital budgeting for a firm has recognized two mutually exclusive projects, A and B, with the following expected net cash flows:
Explain in detail various sources of finance. Which is the most appropriate one?
Explain the terminologies of finance Raise and efficiently utilise funds which are your disposal (or at least try to).That a business organisation also needs to do the same can
Stable Money Measurement A business entity enters within numerous transactions in which affect the business in varied ways. Therefore recording, classification and summarizat
The current spot exchange rate is Dr240/$1.00. Long-run inflation in Greece is calculated at 8 percent yearly and 4.5% in the United States. If PPP is expected to hold among the t
DEFINITION OF FINANCIAL MANAGEMENT The term financial management has been described by management experts in several ways reflecting the duties and responsibilities of a financ
Q. Define Working Capital. Ans. Introduction: - Working capital plays the similar role in the business as the role of heart in the human body. Just like heart gets blood as well
Q. Show Maximum opportunity cost? If Marton hedges all its awaited dollar income over the next year at US$1.55: £l this will make guaranteed (ignoring other sources of risk) st
Lenders Lenders are concerned to receive payment of interest and ultimate re-payment of capital. They don't share in the upside of very successful organisational strategies as
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