If you are an investor looking

If you are an investor looking for a higher yield by investing in CMO securities, which class should you target? a) PAC bonds as long as prepayments occur within the PAC band. b) Support Tranche since these are subject to higher prepayment risk but offer higher returns in exchange for this risk. c) Sequential pay structures where cash flows are paid down based on the waterfall. __________

25) If you were to purchase the longest tranche of a sequential pay CMO, a) your class would be subject to the lowest prepayment risk. b) your class would be subject to the greatest prepayment risk. c) your class would be subject to the greatest likelihood of prepayment and extension risk, versus the other sequential pay classes offered. __________

38) Which of the following statements about Macaulay duration is most accurate? a) The Macaulay Duration of a bond is inversely related to its YTM b) The Macaulay Duration of a bond is positively related to its YTM c) The longer the maturity of a bond, the shorter the Macaulay Duration

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