hard · Asset-Backed Securities
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 because the slower speed reduces the probability of a PAC band breach.
- Stay on its scheduled WAL because it is protected by the PAC band.
- Benefit from contraction risk, as it receives more principal to maintain the deal's overall WAL.
- 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 practice
- Which vehicle was specifically created by the Tax Reform Act of 1986 for this asset class?
- What is the most likely tax structure?
- Given the real estate collateral, which tax vehicle is standard for this multi-class trans
- An originator transfers auto loans to a bankruptcy-remote in… — What is the economic purpo
- Under ASC 860, which condition must be met for a transfer of receivables from an originato
- Why does it covenant NOT to incur additional debt?
- A CLO manager is actively buying and selling senior secured… — Which phase of the transact
- An analyst observes that a Non-agency Senior RMBS bond with… — How should the credit decom