Suppose that a PAC bond is created assuming prepayments speeds of 80 PSA and 350 PSA. If the collateral pays at 100 PSA over its life, what will this PAC tranche’s average life be?
Answer to relevant QuestionsSuppose that $1 billion of pass-throughs is used to create a CMO structure with a PAC bond with a par value of $700 million and a support bond with a par value of $300 million. Answer the below questions. (a) Which of the ...Consider the following CMO structure backed by 8% collateral: Tranche Par Amount (in millions) Coupon Rate (%) A $300 6.50% B $250 6.75% C $200 7.25% D $250 7.75% Suppose that a client wants a notional IO with ...Answer the below questions. (a) “By creating a CMO, an issuer eliminates the prepayment risk associated with the underlying mortgages.” Do you agree with this statement? (b) Wall Street often refers to CMOs as ...Why might an interest rate derivative such as an interest rate swap or interest rate cap be used in a securitization transaction for residential mortgage loans? Suppose that the loans in the collateral pool for a nonagency RMBS deal have a floating rate. What is the risk associated with issued fixed-rate bond classes?
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