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Question:

Consider a collateralized mortgage obligation (CMO) structure with one planned amortization class (PAC) class and one support tranche outstanding. If the prepayment speed is higher than the upper collar on the PAC, the:

A life of the support tranche will decrease.
Explaination

If the prepayment speed is higher than the PAC collar, the support tranche receives more prepayments. The life of the support tranche will shorten. The PAC tranche could receive higher prepayments if the support tranche principal is fully repaid (i.e., a broken PAC). In this case, the support tranche is still outstanding, which means that hasn’t happened yet.