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7 Cards in this Set
- Front
- Back
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Sequential Pay CMO |
1. Principal gets paid off starting with top traunch, then moving down after all P for higher traunch has been repaid |
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Planned amortization (PAC) |
1. Made up of PAC traunches and support traunches 2. PAC traunch guaranteed fixed amortization funds are diverted to or from support traunches as necessary to protect PAC from extension and prepayment risk |
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Targeted Amortization Class |
1. Guaranteed targeted principal payment schedule based on a single, constant prepayment rate--> rather than a range 2. Any extra is given to companion traunche 3. Provide against prepayment not an extension risk |
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Z-Tranches |
1. Zero coupon tranches--> interest accrues until higher tranches are completely paid off to pretect against reinvestment risk because don't get paid in the beginning 2.Usually last tranche, matures 18-22 years 3. Required to pay fed income tax |
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Principal only CMOs (POS) |
1. Only recieve principal payments 2. Pay deep discount from Face value 3. Market value v. sensitive to prepayment rates and therefor IR |
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Interest Only CMOs (IOS) |
1. Sold at deep discount, no face value or par value 2. As principal amortizes and prepays --> IO CF decline 3. IOs Increas in value when IR increase becuse prepayment rates is slow 4. If IR decreases--> prepayments accelerate--> value of PO increases |
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Derivatives |
1. Financial instrument that derives it's value from an underlyinf asset, such as security, commodity or index 2. Constract between two parties to buy or sell the underlying asset or to exchange cash based on some special dondition or event |
