Question: 4. Consider two CMO structures using the same $1 billion balance of MBS pools: Structure 1: $732 million PAC class, $268 million companion class Structure

4. Consider two CMO structures using the same $1 billion balance

4. Consider two CMO structures using the same $1 billion balance of MBS pools: Structure 1: $732 million PAC class, $268 million companion class Structure 2: $702 million PAC class, $297 million companion class a) Which structure offers the most prepayment protection to the PAC class? b) The option cost for the PAC class of which structure will be higher? 1 1

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