CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A fixed-income portfolio manager is evaluating investments in the mortgage market but is concerned about prepayment risk. The security that will most likely minimize prepayment risk is ______.
A. a mortgage passthrough security
B. a portfolio of interest-only mortgage loans
C. tranche B of a collateralized mortgage obligation

User Contributed Comments 2

User Comment
asalonga7 I assumed that being in a second tranche of a CMO would have more prepayment risk than an interest only loan. Can someone explain why an interest only loan has more prepayment risk?
cframptom Maybe it is because interest-only mortgage loans are more apt to be converted/refinanced into more permanent structures?
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