SIE practice questionhardCMOs
Which CMO tranche is most exposed to prepayment risk?
- APlanned amortization class (PAC)
- BSupport (companion) tranche✓ Correct answer
- CZ-tranche
- DInterest-only (IO) tranche
Explanation
Why B — Support (companion) tranche
Support tranches absorb excess prepayments, making them most exposed. PACs are protected, Z-tranches get residual payments, and IOs are structured differently.
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