How does a CMO alter the cash flow from mortgages so as to shift the prepayment risk across various classes of bondholders?
What will be an ideal response?
Prepayment risk refers to the risk associated with the early unscheduled return of principal on a fixed-income security. Collateralized mortgage obligations (CMOs) redirect cash flows from
a pass-through security to various bond classes making it possible to redistribute prepayment risk for investors who want to reduce their exposure to prepayment risk. Because the total prepayment risk of a pass-through will not be changed by altering the cash flows, other investors must be found who are willing to accept the unwanted prepayment risk.
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Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited?
A) salaries incurred but unpaid at year-end B) rent collected in advance for a three-year rental period C) equipment purchased for use in the business operations D) interest revenue accrued on investment in bonds
In which of the following can the Statute of Frauds be raised under the common law of contract?
A) when a seller of specially manufactured goods has made commitments for the procurement for an oral agreement B) when the party against whom enforcement of an oral sales or lease contract is sought admits to such a contract in court C) when the writing must be signed by the party against whom enforcement is sought D) when there has been no written confirmation of a contract between two merchants
A _______________________________ agreement occurs when a union convinces an employer to voluntarily recognize the union based on the evidence of signed authorization cards.
Fill in the blank(s) with the appropriate word(s).
Yelena, the CEO of Andron Inc., reports to the board of directors appointed by the shareholders of Andron. Based on shareholder suggestions, the board ties Yelena's compensation to the performance of Andron. Due to this pressure, Yelena begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Yelena's compensation to firm performance is to overcome
A. inside director-outside director conflict. B. principal-agent problem. C. shareholder capitalism scenario. D. fiduciary responsibility oversight.