SIE - Securities Industry Essentials Exam
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Prepayment risk is MOST prevalent in
CMOs
A
CDSs
B
Municipal fund securities
C
Deferred variable annuities
D
Explanations
CMOs (Collateralized Mortgage Obligations) face prepayment risk. When rates drop, many people refinance their mortgages, which can negatively affect the performance of a CMO investor.