Which One of the Following Is Required for the Cash

question 3

Multiple Choice

Which one of the following is required for the cash flows on a PAC bond to be predictable?

• A)market interest rates must remain constant
• B)market interest rates must steadily decline
• C)mortgage prepayments must remain within the PAC collar
• D)PAC support bonds must be prepaid in a timely manner
• E)mortgage prepayments must exceed the specified PSA schedule

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Definitions:

Discount on Bonds Payable

The gap between a bond's nominal value and its market price when the bond is traded at a price below its nominal value.

Carrying Value

The book value of an asset or liability, reflecting its original cost adjusted for factors such as depreciation or amortization.

Carrying Value

The net amount at which an asset or liability is reported in the financial statements, factoring in depreciation, amortization, and impairment charges.

Unamortized Discount

The portion of a bond's issue price that is below its face value and has not yet been expensed as interest over the life of the bond.