- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 19. Mortgage-Backed Security (MBS) Instrument and Market Features
- Subject 4. Collateralized Mortgage Obligations
CFA Practice Question
In a CMO structure with several PAC tranches that pay off sequentially, the structure effectively becomes ______ once all the support tranches are paid off.
B. a typical sequential-pay structure
C. a Z-tranche
A. a new PAC structure, wherein the PAC tranche that will be paid off first becomes the support tranche
B. a typical sequential-pay structure
C. a Z-tranche
Correct Answer: B
Once the support tranches are paid off, any prepayments must go to the PAC tranche that is currently receiving principal payments.
User Contributed Comments 3
| User | Comment |
|---|---|
| katybo | Busted PAC |
| danlan2 | Busted or broken PAC. |
| endurance | I'm busted |