________ Is Created by Redistributing the Cash Flow (________) to the Different

question 2

Multiple Choice

________ is created by redistributing the cash flow (________) to the different tranches based on a set of payment rules.

• A) An LBO; prepayment and principal
• B) A CMO; interest and principal
• C) A WAC; interest and prepayment
• D) A PSA; interest and principal

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Definitions:

Interest

The charge for borrowing money or the return on invested capital.

Nominal Annual Rate

The stated or face interest rate of a financial product, not adjusting for compounding or inflation over time.

Effective Annual Rate

This is the interest rate on an investment or loan that accounts for the effects of compounding over a given period, providing a more accurate picture of financial returns or costs.

Monthly Compounding

The process of calculating interest earnings on the principal and previously earned interest every month.