Question $29$

A collateralized debt obligation $($CDO$)$:

can only be issued by financial firms that are subject to government regulations.

provides insurance against default on a specified debt. This debt could be a mortgage or a corporate bond or a financial derivative product such as a CDO.

can produce some highly rated $($low$-$risk$)$ tranches for investors even if the portfolio collateral is entirely "junk", that is$,$ the collateral has the lowest credit rating $($and carries the highest risk$).$

has portfolio collateral that must consist exclusively of subprime mortgages or financial derivatives written on subprime mortgages, such as CMOs or MBSs$.$