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torontoanalyst

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tT
发表于 2011-7-11 19:14 | 只看该作者

Accrual tranche (Z bond) cash flow

possible, interest, increase, principal, understand
Hi all,

Let's suppose a CMO with 2 tranches, A and Z during the first two months

During the month 1, the interest of Z tranche is added to the principal of 2 --> ok
During the month 2, the same "saved" interest is used to increase the outstanding principal of Z tranche --> ok

Taken separately (and exclusively), i understand the logic ( \o/ ) but the fact is that the "saved" interest is really added TWICE...that's where i'm confused and don't understand how this could be possible


Thanks by advance for your help

 

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5566

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发表于 2011-7-11 19:14 | 只看该作者
Stupid question.
The amount to increase the month 2 principal of the accrual tranche is taken from the beginning principal of the normal tranche (A).

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economicz

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3#
发表于 2011-7-11 19:14 | 只看该作者
If I understand your question, there is a diversion of cash flow from Tranche Z to Tranche A, i.e. Tranche A gets the money and Tranche Z doesn't. Hence there is no double counting

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