How Are the Cash Flows Allocated When Actual Prepayments Fall

question 16

Multiple Choice

How are the cash flows allocated when actual prepayments fall below a PAC collar's lower bound?

• A)The entire cash flow is paid to the non-PAC support bonds until those bonds are paid in full.
• B)The cash flows are divided between PAC and non-PAC bonds on a pro-rata basis.
• C)PAC payments are recomputed to a reduced fixed amount.
• D)The entire cash flow is paid to the PAC bondholders.
• E)The interest income is paid to the non-PAC bondholders with all principal amounts paid to the PAC bondholders.

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