Principal Only (PO) strip investors favor prepayment independent of the market rate I e PO strip investors like prepayment rates to increase True False Which statement is NOT TRUE about a Z tranche security A Z tranche does not get any cash flow payment until all other tranches are paid off The interest on a Z tranche gets used for interest payments on more senior tranches A Z tranche has a higher maturity than the more senior A tranche A Z tranche gets it's name from a Zero coupon bond A Z tranche is considered riskier than the more senior A tranche A CMO is being issued with 2 tranches Tranche A has $16 million in principal and a 4 3 coupon Tranche B has $10 million in principal and a 4 3 coupon The mortgages backing the security issued are FRM at a mortgage rate of 4 3 with 10 year maturities and annual payments There is no guarantee servicer fee Prepayment is assumed to be 5 CPR Remember, the sum of tranches' principal is the total principal (balance) principal owed by the mortgage pool What is the cash flow to Tranche A investors in year 1 Round your answer to two decimal points (e g if your answer is $45,666 6666, write 45666 67)

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Posted on Oct 03, 2024

Principal Only (PO) strip investors favor prepayment independent of the market rate. I.e. PO strip investors like prepayment rates to increase.

True

False

Which statement is NOT TRUE about a Z tranche security?

		A Z tranche does not get any cash flow payment until all other tranches are paid off
		The interest on a Z tranche gets used for interest payments on more senior tranches
		A Z tranche has a higher maturity than the more senior A-tranche
		A Z tranche gets it's name from a Zero-coupon bond
		A Z tranche is considered riskier than the more senior A-tranche

A CMO is being issued with 2 tranches: - Tranche A has $16 million in principal and a 4.3% coupon. - Tranche B has $10 million in principal and a 4.3% coupon. The mortgages backing the security issued are FRM at a mortgage rate of 4.3% with 10 year maturities and annual payments. There is no guarantee/servicer fee. Prepayment is assumed to be 5% CPR.

Remember, the sum of tranches' principal is the total principal (balance) principal owed by the mortgage pool. What is the cash flow to Tranche A investors in year 1? Round your answer to two decimal points (e.g. if your answer is $45,666.6666, write 45666.67).