- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 45. Introduction to Asset-Backed Securities
- Subject 5. Collateralized Mortgage Obligations
CFA Practice Question
Suppose a CMO structure includes a PAC tranche and a support tranche. The ______ will have the least average life variability and the ______ will have the greatest average life variability.
A. the PAC tranche; the support tranche
B. the PAC tranche; the collateral
C. the support tranche, the PAC tranche
Explanation: The PAC tranche is protected against extension risk and contraction risk by the support tranche.
User Contributed Comments 2
| User | Comment |
|---|---|
| jpducros | What about the average life of the collateral ? |
| SMcalister | Forgive me if I'm wrong, but I think the collateral is the house that is seized if payments aren't made. It doesn't have an average life. |