1. A Collateralized Mortgage Obligation a) totally eliminates prepayment risk to the investor under all prepayment environments. b) redistributes prepayment risk among different bond classes. c) was created to provide investors excess yield opportunities for all of the classes offered.

2. Which of the following statements about Modified Duration is false? a) Modified Duration provides a linear estimate of the percentage price change for a bond given a change in its YTM. b) Modified Duration cannot be larger than Macaulay Duration (assuming a positive YTM) c) Modified Duration is the best duration measure for a complex bond, such as a bond with an embedded option.

3. ) Which of the following is not a property of bond duration? a) Presence and nature of embedded options b) Coupon Rate or payment per period c) Time-to-maturity (as of the beginning of the period) d) Yield-to-maturity per period e) The Bonds convexity f) Fraction of the period that has gone by