Asked by Karen Ortiz on Jul 03, 2024
Verified
Which of the following is true regarding mortgage-backed security tranches?
A) Different tranches in a mortgage-backed security have different default risk exposure.
B) All tranches in a mortgage-backed security have the same default risk exposure.
C) all tranches in a mortgage-backed security have the same returns to investment.
D) Different tranches in a mortgage-backed security have different default risk exposure .
Mortgage-Backed Security Tranches
Portions of a mortgage-backed security segregated by risk, payment timing, or other characteristics to suit different investors.
Default Risk Exposure
The likelihood that a borrower will be unable to make required payments on their debt obligations.
Investment
The allocation of resources, usually money, with the expectation of generating an income or profit.
- Familiarize oneself with the mechanisms and valuation processes of mortgage-backed securities, collateralized debt obligations, and credit default swaps.
Verified Answer
Learning Objectives
- Familiarize oneself with the mechanisms and valuation processes of mortgage-backed securities, collateralized debt obligations, and credit default swaps.
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