A collateralized mortgage obligation pays a 2% coupon rate on the first tranche plus any prepayments until its $50 million par value is retired. The second and third tranches receive 4% and 5% coupon rates. The third tranche receives principal only after the second is retired. Which statement is most accurate?
a) Each tranche has the identical level of risk
b) The first tranche has the highest prepayment risk
c) The second tranche has no prepayment risk
d) The third tranche is the least risky
Answers: 1
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A collateralized mortgage obligation pays a 2% coupon rate on the first tranche plus any prepayments...
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