hard · Asset-Backed Securities
An investor holds a Z-bond in a CMO structure. Which of the following best describes the cash flow profile of this instrument?
- It receives a floating rate coupon but is locked out of principal for the first 5 years.
- It receives interest-only (IO) payments until the pool amortizes by 50%.
- It receives principal and interest pro-rata with the most senior tranche.
- It receives no cash interest or principal until all prior tranches are retired, with interest accruing to the principal balance.
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