5、For collateralized mortgage obligations (CMOs), are prepayment risk and interest rate risk, respectively, different for the various classes (tranches) of bonds?

      Prepayment risk?  Interest rate risk?

A.   No  No

B.    No  Yes

C.   Yes  No

D.   Yes  Yes

A. Answer A

B. Answer B

C. Answer C

D. Answer D

答案和详解如下：

5、Correct answer is D

"Overview of Bond Sectors and Instruments," Frank J. Fabozzi

2008 Modular Level I, Vol. 5, pp. 310-312

Study Session 15-64-f

state the motivation for creating a collateralized mortgage obligation

CMOs are structured so as to redistribute prepayment risk and interest rate risk among the different classes, or tranches, of bonds using rules for the distribution of interest and principal. For example, if there are three classes of bonds the distribution rules ensure that the first class of bonds receives all principal until they are completely paid off. Then the next class of bonds receives all principal until they are paid off. Finally, the last class receives principal payments. Effectively, the first tranche has the shortest maturity (duration) while the last tranche has the longest maturity (duration). Thus prepayment risk and interest rate risk have been redistributed across the bond classes with the first tranche experiencing the greatest prepayment risk and the last tranche experiencing the most interest rate risk.