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Basic Question 0 of 15
The presence of a shifting interest mechanism ______ for the senior tranche.
II. increases contraction risk
III. reduces credit risk
IV. reduces contraction risk
I. increases credit risk
II. increases contraction risk
III. reduces credit risk
IV. reduces contraction risk
User Contributed Comments 2
| User | Comment |
|---|---|
| wink26 | Allocating a large % of prepayments to senior tranche could shorten duration, and increase contraction risk (but it reduces credit risk because the senior tranche gets to pocket the prepays first). |
| kodali | Also by having the sub-ordinate tranches still avaialable, they helps senior tranches by absorbing defaults first |
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Learning Outcome Statements
describe the features of a fixed-income security
CFA® 2026 Level I Curriculum, Volume 4, Module 1.