which one ?

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Two newly hired fixed income analysts are debating the merits of federal agency backed mortgage securities, specifically mortgage pass-through and collateralized mortgage obligations (CMOs).Analyst A and Analyst B make the following statement

Analyst A: Investors in mortgage pass-through securities backed by one mortgage pool have equal exposure to prepayment risk, whereas, investors in the CMOs of one pool do not

Analyst B investors in CMOs have greater protection against default risk due to additional credit enhancement

Identify whether the statements of each analyst are correct or incorrect:

Analyst A Analyst B

A. Correct Correct
B. Correct Incorrect
C. Incorrect Correct
D. Incorrect Incorrect
 
B.

Probably the strongest motivation for CMO's is divvying prepayment risk. There are some CMO's with almost no prepayment risk and some with huge prepayment risk.

There is essentially no default risk in agency backed mortgage securities.
 
Agree with Joey, and more to the point, this is about as close to a test question the way CFAI asks them as I've seen in a mock environment.
 
I may get the wrong picture before . I don't understand why the statement 2 is incorrect

unless it mean CMOs compare to mortgage pass through .
 
CMO's and pass-throughs based on agency securities have no default risk.
 
I really get the picture now. Thanks for JoeyDVivre

I had been focus on CMOs , miss the issuer

By the way , would you like to tell me , if the issuer is commercial , the statement 2 is

correct ?
 
I really get the picture now. Thanks for JoeyDVivre

I had been focus on CMOs , miss the issuer

By the way , would you like to tell me , if the issuer is commercial , the statement 2 is

correct ?
 
I suppose it would depend on whether the issuer included credit enhancement.
 
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