A CMO is issued that has three tranches. One has an average life of 2 years. A second has an average life of 10 years. The third has an average life of 30 years. Initially, interest payments are distributed in this order:
A)first to the holders of the 2-year tranche
B)first to the holders of the 10-year tranche
C)first to the holders of the 30-year tranche
D)equally to all CMO holders of any tranche

Question

Quizplus · Accepted Answer

equally to all CMO holders of any tranche. All bondholders share equally in the interest payments. Only principal payments are directed to the owners in each tranche in sequential order.

A CMO Is Issued That Has Three Tranches