If a CMO is yielding 5.95% while the comparable Treasury is yielding 5.10%, what is the yield pick-up on the CMO?

To determine the yield pick-up on the Collateralized Mortgage Obligation (CMO), you subtract the yield of the comparable Treasury security from the yield of the CMO. In this case, the CMO is yielding 5.95% and the comparable Treasury is yielding 5.10%.

The yield pick-up calculation is as follows:

5.95% (CMO yield) - 5.10% (Treasury yield) = 0.85%

To convert this into basis points, note that one percentage point equals 100 basis points. Therefore, 0.85% corresponds to 85 basis points.

This calculation shows that the yield pick-up on the CMO over the comparable Treasury is indeed 85 basis points, which supports the choice given.