A PAC tranche is a type of collateralized mortgage obligation (CMO) that is used to finance the purchase of mortgage loans. The cash flows from the mortgage loans are used to pay the interest and principal on the PAC tranche. PAC tranches are typically the first to be repaid in a CMO structure.
What is a PAC structure? A PAC structure is a type of accounting structure in which the financial statements of a company are organized into three main sections: operating activities, investing activities, and financing activities. The operating activities section includes revenues and expenses from the company's core business operations. The investing activities section includes the purchase and sale of long-term assets, such as property, plant, and equipment. The financing activities section includes the issuance and repurchase of the company's equity and debt.
What is a support tranche?
A "support tranche" is a type of loan that is typically used to finance the construction of large projects. The loan is usually structured so that the borrower makes interest-only payments for the first few years, followed by a balloon payment of the remaining principal at the end of the loan term. What is extension risk? Extension risk is the risk that a firm will not be able to extend its debt when it becomes due. This can happen for a number of reasons, including a change in the market conditions, a change in the firm's credit rating, or a change in the firm's financial condition. If a firm is unable to extend its debt, it may be forced to liquidate its assets to pay off the debt. extension risk is a type of credit risk.
In which of the following tranche cash flows are more predictable?
The answer to this question depends on the type of tranche being considered. For example, interest payments on senior tranches are generally more predictable than those on junior tranches, since senior tranches have priority in terms of repayment. Similarly, principal payments on senior tranches are also typically more predictable than those on junior tranches.
Which statement is true about Po tranches?
Po tranches are a type of collateralized debt obligation (CDO). A CDO is a security that is backed by a pool of assets, typically loans or bonds. The assets are divided into tranches, or slices, with each tranche having a different level of risk. The Po tranche is the most junior, or riskiest, tranche in the pool.
While the Po tranche is the riskiest tranche, it also typically has the highest yield. This is because investors are compensated for taking on the additional risk.
Po tranches are not without risk, however. If the underlying assets in the pool perform poorly, the value of the Po tranche will suffer. In a worst-case scenario, the Po tranche could be wiped out entirely.