CFA Practice Question

There are 490 practice questions for this study session.

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.
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