Products & RisksQuestion 47 of 125
A mortgage-backed pass-through security, such as a GNMA (Ginnie Mae) certificate, passes through to investors:
a.Only interest, with principal returned solely at maturity
b.Corporate dividends
c.Monthly payments of both principal and interest from a pool of mortgages
d.A guaranteed fixed price regardless of market conditions
Explanation
A mortgage pass-through security distributes to investors the monthly principal and interest payments collected from an underlying pool of mortgages. Because homeowners can prepay their loans, these securities carry prepayment risk, which accelerates return of principal when rates fall.
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