Question

For agency stripped CMOs, which of the following allow the investor to receive majority of the cash flow earlier?

Group of answer choices

Interest tranche

Principal tranche

Cannot be determined

Both receive majority of the cash flow at the same time

Answer 1

The correct answer is interest tranche

The CMOs refers to collateralized mortgage securities which are pooled together and sold as investments, These investments are categorised on the basis of the risks and the repayment of the debt, The maximum amount that the investors receive is in form of the interest as this is paid on the basis of the regular interval and the principal repayment is done at the time of maturity.

Therefore, The correct answer should be Option A "Interest Tranche"