Question: Suppose that 1 billion of pass throughs is used to create

Suppose that $1 billion of pass-throughs is used to create a CMO structure with a PAC bond with a par value of $700 million (PAC I), a support bond with a schedule (PAC II) with a par value of $100 million, and a support bond without a schedule with a par value of $200 million.
Answer the below questions.
(a) Will the PAC I or PAC II have the smaller average life variability? Why?
(b) Will the support bond without a schedule or the PAC II have the greater average life variability? Why?

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  • CreatedAugust 22, 2015
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