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CFA Level 1 Question of the Week - Fixed Income Investments

Matt_AnalystPrepMatt_AnalystPrep MontrealPosts: 53 Associate
edited August 18 in CFA Practice Questions

A director at a large Wall Street bank made the following comment on a renowned business channel:

''Support tranches have both more contraction risk and more extension risk than the underlying mortgage-backed security (MBS), and have a lower promised interest rate than the planned amortization class (PAC) tranche.''

Which of the following statements is most accurate?

CFA Level 1 Question of the Week - Fixed Income Investments 6 votes

A. The director’s comment is accurate.
0% 0 votes
B. The director’s comment is inaccurate; support tranches have only more extension risk than the underlying mortgage-backed security (MBS), and have a lower promised interest rate than the planned amortization class (PAC) tranche.
33% 2 votes
C. The director’s comment is inaccurate; support tranches have both more contraction risk and more extension risk than the underlying mortgage-backed security (MBS), and have a higher promised interest rate than the planned amortization class (PAC) tranche.
66% 4 votes
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