What was the motivation for the creation of PAC bonds?
Answer to relevant QuestionsSuppose that a savings and loan association has decided to invest in mortgage-backed securities and is considering the following two securities: (i) a Freddie Mac pass-through security with a WAM of 340 months or (ii) a PAC ...In a CMO structure with several PAC bonds, explain why, when the support bonds are paid off, the structure will be just like a sequential-pay CMO. Answer the below questions. (a) What is a PO security? What is an IO security? (b) How is the price of an interest-only security expected to change when interest rates change? Describe how the schedule for a PAC tranche is created. Why does the treatment of modified loans in a nonagency RMBS deal impact the bond classes?
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