Accrual bond in CMO

CFA Level II
#1

Dear All:

Could you pleaase give some ideas about the accrual bond in CMO. I have read many times but still not clear about the tranche process.

thank you so much for your time.

#2

Accrual bond in CMO is bond that does not get paid Interest or Principal, but the Interest on the bond is rather accrued. I think the principal and the interest gets paid together at the end.

#3

With the accrual bond there are no intermediate cash flows. From the inverstor’s perspective, there are only two cash flows, at the beginning - ouflow and at the end - inflow. All intermediate interests are added to the principal. The interest rate is the coupon rate.