medium · Asset-Backed Securities
A $100,000,000 pool is structured with a $95,000,000 senior bond and $5,000,000 in overcollateralization.
If the structure is 'pro-rata' for principal, what happens to the overcollateralization percentage over time as the pool amortizes, assuming no losses?
- It increases rapidly
- It flips to 100% sequential pay
- It decreases as the pool shrinks
- It stays constant at 5.0%
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