How do PAC tranches differ from sequential CMO tranches?

PAC (Planned Amortization Class) tranches receive stable cash flows across a range of PSA speeds (PAC band), with support tranches absorbing prepayment variability. Sequential tranches have no prepayment protection; each tranche receives all principal until paid off before the next tranche starts.

What is a Z-tranche in a CMO?

Z-tranches (accrual tranches) receive no cash flows until all preceding tranches are retired. Interest accrues and is added to principal. Once earlier tranches are paid, Z-tranche receives all remaining cash flows. Z-bonds have long, stable cash flows attractive to long-duration buyers like pension funds.

CMO Tranche Cash Flow Priority

Model CMO (Collateralized Mortgage Obligation) sequential-pay tranches to determine cash flow timing and principal distribution priority across A, B, C, and Z tranches under various prepayment speeds.

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Frequently Asked Questions

How do PAC tranches differ from sequential CMO tranches?

What is a Z-tranche in a CMO?