hard · Asset-Backed Securities collateral
An investor owns a 'PAC Companion' tranche priced at 94.00 (Discount).
If prepayments in the pool slow down to the bottom of the PAC band, the 'Companion' tranche will likely:
- Increase in price, since slower prepayments reduce the probability of a PAC band breach event occurring.
- Stay right on schedule for its own WAL profile, since it stays fully protected by the PAC band.
- Benefit from contraction risk, since it receives extra principal to hold the deal's overall WAL near target level.
- Suffer from extension risk, as it must absorb the 'slack' to keep the PAC tranche on its planned schedule.
Sign up free to see the explanation and track your rank →
More Asset-Backed Securities collateral practice
- Based on standard CMBS underwriting, which of the following correctly identifies the Loan-
- What is the Debt Service Coverage Ratio (DSCR)?
- In a subprime auto loan recovery, a defaulted vehicle with a… — What is the loss severity
- What is the series' current excess spread?
- Why might the Z-spread be a more accurate measure of the bond's value relative to the Trea
- In a prime auto loan pool, when does the loss curve typically reach its peak monthly rate?
- Market interest rates drop from 6.5% to 4.5%. In a pool of residential mortgages, which ec
- Which prepayment benchmark is specifically designed for the residential mortgage market to