Suppose that $1 billion of pass-throughs is used to create a CMO structure with a PAC bond
Question:
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 and a support bond with a par value of $300 million. Answer the question below:
Which of the following will have the greatest average life variability and least average life variability: (i) the collateral, (ii) the PAC bond, or (iii) the support bond? Why?
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Greatest Average Life Variability The greatest average life variability is of support bond because t...View the full answer
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