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Question
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.
Answer
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