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How Are the Cash Flows Allocated When Actual Prepayments Fall

Question 71

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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