Investments Flashcards
1
Q
Collateralized Mortgage obligations
A
CMO did not view mortgage bills as a means of passing through payments to certified holders in exactly the same form as received. Instead, the mortgage payments received or looked at on a cash flow basis. Based on the basis of expected cash flow to be received over the life of pool, separate classes of securities called tranches are created. CMO’s are multi class pass through securities.
2
Q
Standard deviation versus beta
A
Standard deviation measures variability of returns used in a non-diversified portfolio and is a measure of total risk.
Beta measures volatility of returns, used in a diversified portfolio as a measure of systematic risk.
