PAC tranche - Definition

Planned Amortization Class (PAC) Tranche is a bond that receives a primary payment schedule. PAC tranches use a mechanism similar to a 'sinking fund' to establish a fixed Principal payment schedule that directs cash-flow irregularities caused by faster- or slower-than-expected prepayments away from the PAC tranche and toward another companion or Support tranche (see below). With a PAC tranche, the Yield, average life, and lockout periods estimated at the time of Investment are more likely to remain stable over the life of the security. The measure of prepayment Risk protection, which includes both contraction and extension risk, is limited by the size of the companion bond and the speed of prepayment.

Terms near "PAC tranche"

Pacific Exchange
Pacific Rim
Pacific Stock Exchange
Package Deal
Package loan
Package mortgage
Package policy
Paid up
Paid-in capital
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