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$400 million of mortgage pass-throughs will be used as collateral for five tranches. The first two tranches are planned amortization tranches−$260 million of bonds of tranche U and $50 million of bonds of tranche V. Tranche U is a planned amortization class (PAC) I tranche and tranche V is a scheduled tranche. The third tranche is a scheduled support tranche—the holders of the $40 million of bonds in tranche W receive principal repayments according to a schedule as long as prepayment speed is between 190 and 240 PSA. The last two tranches are unscheduled floating-rate support tranches: $25 million of X bonds and $25 million of Y bonds. Which of the following statements regarding the prepayment risk of the bonds is most accurate? The: A. W bonds have less prepayment risk than the X bonds, which have less prepayment risk than the Y bonds. B. U bonds have less prepayment risk than the V bonds, which have less prepayment risk than the Y bonds. C. W bonds have less prepayment risk than the U bonds, which have less prepayment risk than the Y bonds. |