Explanation:
A PAC bond is a type of tranche within a CMO. Its cash flows are designed to follow a target principal repayment schedule within a specified prepayment range, which helps reduce prepayment uncertainty for that tranche. So the correct relationship is that a PAC is a class of CMO with target prepayment speeds.
Ultimate access to all questions.
A
a) PAC is a class of CMO that issues a bond with target prepayment speeds
B
b) PAC is a class of CMO that uses external credit enhancements to guarantee senior bond
C
c) CMO is a class of PAC that issues a bond with target prepayment speeds
D
d) CMO is a class of PAC that uses external credit enhancements to guarantee senior bond
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