Z Class Is

question 53

Multiple Choice

Z class is:

• A)an accrual class of a CMO that makes a payment to bondholders only when preceding CMO classes have been retired
• B)the residual class of a CMO, giving the owner the right to any remaining collateral in the trust after all other bond classes have been retired plus any reinvestment income earned by the trust
• C)a bond that has some prepayment protection and expected durations of five to seven years depending on the level of interest rates
• D)a bond that has the shortest average life with a minimum of prepayment protection.They are, therefore, of no interest to investors seeking short-duration mortgage-backed assets

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Definitions:

Time To Maturity

The duration remaining until the final repayment date of a bond or other fixed-income security. It decreases as the bond approaches its maturity date.

Coupon Rate

Each year, the interest rate given on a bond calculated as a percentage of its nominal value.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, expressed in years.

Interest Rate Risk

The potential for investment losses due to fluctuations in interest rates, affecting the value of interest-bearing assets.