Practice Quiz

FINRA Series 6

Category - Series 6

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Which of the following statements regarding CMOs is false?
  1. CMOs are zero-coupon bonds that are backed by real estate.
  2. Relative to other bonds, CMOs are illiquid.
  3. CMO investors are divided into classes, and the class determines when the investor will receive payments of principal.
  4. CMOs are considered to have lower risk and, therefore, offer lower returns.
Explanation
Answer: A - 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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