CMOS and CDOS Questions And Correct Answers
(Verified Answers) 2026
Collateralized Mortgage Obligations - CORRECT ANSWER -A debt security, based on a pool of
mortgage loans, that provides a relatively stable stream of payments for a relatively predictable
term.
Principal only CMOs - CORRECT ANSWER -CMO that is similar to zero coupon securities.
Interest is stripped and sold separately. Principal is sold at a discount. Bond is eventually
redeemed at par.
Interest only CMOS - CORRECT ANSWER -CMO in which the bondholder receives the
interest payments from the underlying mortgages and no principal. As mortgage holders repay
principal, interest payments decrease.
Planned Amortization Class CMO(PAC) - CORRECT ANSWER -provides predetermined
schedule of principal repayments
This tranche has the most certain repayment date.
Tranche - CORRECT ANSWER -a class of CMO. Principal is returned to one tranche at a time
in a CMO.
Targeted Amortization Class CMO(TAC) - CORRECT ANSWER -A type of CMO tranche that
provides protection from refinancing risk through the use of support tranches. Only provide
protection from contraction risk ,short maturity schedule, not extension risk ,long maturity
schedule
Zero Tranche CMO - CORRECT ANSWER -Most volatile CMO Tranche
CMO Characteristics - CORRECT ANSWER -Pay interest and principal monthly
(Verified Answers) 2026
Collateralized Mortgage Obligations - CORRECT ANSWER -A debt security, based on a pool of
mortgage loans, that provides a relatively stable stream of payments for a relatively predictable
term.
Principal only CMOs - CORRECT ANSWER -CMO that is similar to zero coupon securities.
Interest is stripped and sold separately. Principal is sold at a discount. Bond is eventually
redeemed at par.
Interest only CMOS - CORRECT ANSWER -CMO in which the bondholder receives the
interest payments from the underlying mortgages and no principal. As mortgage holders repay
principal, interest payments decrease.
Planned Amortization Class CMO(PAC) - CORRECT ANSWER -provides predetermined
schedule of principal repayments
This tranche has the most certain repayment date.
Tranche - CORRECT ANSWER -a class of CMO. Principal is returned to one tranche at a time
in a CMO.
Targeted Amortization Class CMO(TAC) - CORRECT ANSWER -A type of CMO tranche that
provides protection from refinancing risk through the use of support tranches. Only provide
protection from contraction risk ,short maturity schedule, not extension risk ,long maturity
schedule
Zero Tranche CMO - CORRECT ANSWER -Most volatile CMO Tranche
CMO Characteristics - CORRECT ANSWER -Pay interest and principal monthly
