What is the burnout effect?
Answer to relevant QuestionsAnswer the below questions. (a) What is the cash flow yield of a mortgage pass-through security? (b)What are the limitations of cash flow yield measures for a mortgage pass-through security? What are subprime mortgage-backed securities? Explain the role of a support bond in a CMO structure. Suppose that for the first four years of a CMO, prepayments are well within the initial PAC collar. What will happen to the effective upper collar? In a discussion of the CMO market, the popular press sometimes refers to this sector of the mortgage-backed securities market as the riskiest sector and the pass-through sector as the safest sector. Comment.
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