A CMO Is Issued That Has Three Tranches

A CMO is issued that has three tranches. One has an average life of 2 years. A second has an average life of 10 years. The third has an average life of 30 years. Initially, interest payments are distributed in this order:

A) first to the holders of the 2-year tranche
B) first to the holders of the 10-year tranche
C) first to the holders of the 30-year tranche
D) equally to all CMO holders of any tranche

Correct Answer:

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