Suppose that $1 billion of pass-throughs is used to create a CMO structure with a PAC bond
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Suppose that $1 billion of pass-throughs is used to create a CMO structure with a PAC bond with a par value of $700 million (PAC I), a support bond with a sched- ule (PAC II) with a par value of $100 million, and a support bond without a schedule with a par value of $200 million.
a. Will the PACI or PAC II have the smaller average life variability? Why?
b. Will the support bond without a schedule or the PAC II have the greater aver- age life variability? Why?
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Rustia Melrod
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