Risk attributes of collateralized mortgage obligations differ based on tranches.

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Tranches in collateralized mortgage obligations (CMOs) have different risk attributes based on their position in the cash flow waterfall, their credit rating, and their exposure to prepayment risk. Lower tranches tend to have higher risk and higher potential returns, while higher tranches have lower risk and lower potential returns. Therefore, the risk attributes of CMOs differ based on tranches.

Risk Attributes of Collateralized Mortgage Obligations Differ Based on Tranches