With a GNMA pass-through,the investor bears ________ of the prepayment risk; with a non callable mortgage-backed bond,the investor bears ________ of the prepayment risk; and with a CMO,the investor bears ________ of the prepayment risk.

Question

Quizplus · Accepted Answer

With a GNMA pass-through, the investor bears some of the prepayment risk, but not all. With a non-callable mortgage-backed bond, the investor bears all of the prepayment risk. With a CMO, the investor bears none of the prepayment risk as it is passed on to the lower tranches. Therefore, option C is the correct answer.

With a GNMA Pass-Through,the Investor Bears ________ of the Prepayment