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Fixed Income
Fixed Income
Hard
In an Oakmont Mortgage Trust CMO structure, the PAC tranche is designed with a PSA band of 100-275 PSA. If actual prepayment speeds consistently run at 325 PSA — well above the upper band — which outcome is most likely?
A
The support tranche is retired first, after which the PAC tranche loses its prepayment protection
B
The PAC tranche receives exactly its scheduled principal regardless of prepayment speed
C
Both the PAC and support tranches receive proportional excess prepayments
D
The Z-tranche absorbs all excess prepayments before any other tranche is affected
Select an answer to continue
Tags
#cmo
#pac-tranche
#support-tranche
#prepayment-risk
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CFA Level II — Fixed Income Practice Question | AcadiFi | AcadiFi