CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Suppose that a PAC bond is created using prepayment speeds of 80 PSA and 200 PSA. The average life is 10 years. If the collateral pays at 150 PSA over its life, the average life for the PAC tranche will be ______ 10 years.
A. shorter than
B. equal to
C. longer than
Explanation: Since 150 PSA is within the PSA collar, the average life will equal 10 years.

User Contributed Comments 2

User Comment
americade initially
dblueroom just be careful that if actual preprepayment changed, then there is variability in avg life.
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