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Collateralized Mortgage Obligations

CMOs are a type of derivative made up of mortgages or mortgage-backed securities. You don’t need to know much about CMOs for the exam, but there are a few things you should know, just in case you get a random CMO question (and don’t be surprised if you do).

A CMO is made up of tranches, which is basically just a fancy-schmancy way of saying ‘classes.’ Each tranche (or class) pays out principal (which comes from the interest on mortgage payments made by ho...

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