SERIES-6 practice question 8 of 35

Which of the following statements regarding CMOs is false?

Answer options

A: CMOs are zero-coupon bonds that are backed by real estate. Correct answer

B: Relative to other bonds, CMOs are illiquid.

C: CMO investors are divided into classes, and the class determines when the investor will receive payments of principal.

D: CMOs are considered to have lower risk and, therefore, offer lower returns.

Correct Answer:

A. CMOs are zero-coupon bonds that are backed by real estate.

Explanation

The false statement is that CMOs are zero-coupon bonds that are backed by real estate. CMOs are not zero-coupon bonds; they make payments that include both interest and principal.

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