The last tranche of a CHO
A) has the principal decrease each year.
B) has small interest-rate risk.
C) receives no interest or principal until the other tranches have been retired.
D) typically has a lower rate of return than the earlier tranches.

Question

Quizplus · Accepted Answer

The last tranche of a CMO or CHO is known as the Z-tranche. It receives no interest or principal payments until all the other tranches have been retired. This means it has no interest-rate risk because it does not receive any payments until the others have been paid off. However, it may have a higher rate of return than the earlier tranches because it is taking on more risk by not receiving any payments until the end.

The Last Tranche of a CHO