A class of tranche in a planned amortization class bond that receives a primary payment schedule. As long as the actual prepayment rate is between a designated range of prepayment speeds, the life of the PAC tranche will remain relatively stable. This tranche of the PAC bond receives some measure of protection against prepayment risk.
|||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. If the speed of repayment is too slow , the life of the PAC tranche is extended; if the speed of repayment is too fast , the life of the PAC tranche is shortened.
