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Yuri [45]
3 years ago
9

A collateralized mortgage obligation pays a 2% coupon rate on the first tranche plus any prepayments until its $50 million par v

alue is retired. The second and third tranches receive 4% and 5% coupon rates. The third tranche receives principal only after the second is retired. Which statement is most accurate?
a) Each tranche has the identical level of risk
b) The first tranche has the highest prepayment risk
c) The second tranche has no prepayment risk
d) The third tranche is the least risky
Business
1 answer:
Sloan [31]3 years ago
4 0

Answer:

The correct answer is b) The first tranche has the highest prepayment risk.

Explanation:

A collateralized mortgage obligation (CMO) is a type of security backed by mortgage. It is comprised of a pool of mortgages that are bundled together and sold as an investment. Prepayment risk is the risk of loss of interest income due to early repayment of the principal by the borrower.

In the given situation, there are three tranches. The first tranche has the highest prepayment risk because it is receiving principal at the earliest. Hence, there is more of a chance of this principal being returned early and the CMO holder losing out on potential interest. Therefore, the prepayment risk of the first tranche is the highest among all three tranches.

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Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability
wariber [46]

Answer:

expenditures and taxes

Explanation:

Fiscal policy refers to a government action to adjust taxes and expenditures to influence economic growth. Taxes are the main sources of income for the government. A rise in taxes increases revenue to the government but lower individual disposable income. High taxes discourage investments and business expansion.

Government expenditure in infrastructure and other projects creates employment and incomes in the economy. Reduced spending by the government may result in a lower aggregate demand. The government uses fiscal policies together with monetary policies to achieve its economic goals.

5 0
3 years ago
British investors frequently invest in the u.s. or italy, depending on the prevailing interest rates. if italian interest rates
guajiro [1.7K]

Answer:

decrease, upward

Explanation:

When Italian interest rates increase, their demand in Italy would increase, hence a downward pressure on the supply of the same would be required. as the demand of the currency in italy increases, its value also increases. hence there is an upward pressure on the value of the pound against the u.s. dollar.

3 0
3 years ago
Describe at least three design decisions you could make to create a clear, effective presentation
olga_2 [115]
Spacing, color, and contrast <span />
4 0
3 years ago
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Ciara is taking AP Biology and her twin brother, Elon, is in regular Biology. At the end of the year, Ciara earned a B and Elon
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Both Ciara and Elon earned the same number of points toward their GPA.

AP classes are on a 5.0 scale, so a b in an AP class is the same as an A in a regular class
8 0
2 years ago
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Based on this graph, why are there upper and lower limits for the $?
REY [17]

This graph is indicating a fixed exchange rate that prevents the foreign exchange rate from moving outside of the upper and lower limits.

Answer: Option D.

<u>Explanation:</u>

A fixed exchange rate, now and again called a pegged exchange rate, is a kind of swapping scale system in which a cash's worth is fixed or pegged by a money related authority against the estimation of another money, a container of different monetary forms, or another proportion of significant worth, for example, gold.

In this case, the exchange rate is fixed because the limits are fixed in this case.

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