How does a CMO alter the cash flow from mortgages so as to shift the prepayment risk across various classes of bondholders?
Answer to relevant QuestionsExplain the role of a support bond in a CMO structure. Suppose that the $1 billion of collateral in Question 14 was divided into a PAC bond with a par value of $800 million and a support bond with a par value of $200 million. Will the PAC bond in this CMO structure have more or ...Answer the below questions. (a) What is the role of a lockout in a CMO structure? (b) Explain why in a reverse PAC bond structure the longest average life bond can turn out to be effectively a support bond if all the support ...Suppose that a tranche from which an inverse floater is created has an average life of five years. What will the average life of the inverse floaterbe? Answer the below questions. a. What is meant by an involuntary prepayment? b. Why is the distinction between a voluntary and involuntary prepayment important in non agency RMBS?
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