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The allocation of principal for PAC, TAC, and Companion tranches is done depending on prepayment speeds. (15) 1. Order the optionality of the three classes
The allocation of principal for PAC, TAC, and Companion tranches is done depending on prepayment speeds. (15) 1. Order the optionality of the three classes from most option laden to least option laden. 2. These three class types have more or less WAL variability than the underlying collateral. Which class has more? Which class has less? 3. One method for creating a TAC was to define a schedule based on the "average" of a sequential and the pro rata equivalents. How does that depend on prepayment speed and to what advantage
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