Question
In time-tranched structures, which tranches bear more prepayment risk?
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Answer
Support tranches bear more prepayment risk.
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Question
What kind of exam mistake can occur if a student confuses option-sensitive and non-option-sensitive risk measures?
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Answer
Misclassifying cash flow sensitivity when embedded options matter.
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Question
How does credit tranching redistribute default risk?
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Answer
Junior tranches absorb first losses; seniors are protected until juniors are wiped out.
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Question
Why do waterfall structures reduce credit risk for senior tranches?
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Answer
Cash flows are paid to senior tranches before junior tranches.
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