A Mortgage Pool Is Divided into A,B,C,and Z-Tranches Based on the Textbook

question 5

Multiple Choice

A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.Which tranche will have the longest life?

• A) A-tranche
• B) B-tranche
• C) C-tranche
• D) Z-tranche
• E) All tranches will have equal lives.

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Definitions:

Net Income

The total amount of profit earned by a company after all expenses and taxes have been subtracted from revenue.

Forward Contract

A non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today.

Cash Flow Hedge

A strategy used in financial risk management to protect against the risk associated with fluctuations in cash flows due to changes in interest rates, foreign exchange rates, or other variables.

Initiation Date

The specific date at which a particular transaction, project, or contract begins.