The value of support tranche should be what % of total bond value so that we can safely conclude that it is suffiently large to provide prepayment protection to all other tranches??? Any guidance on this?
Depends on lots of stuff and beyond the scope. In particular, it depends on prepayment sensitivity to interest rates, the PAC/TAC etc collars, interest rate vol, presence of sequential tranches, and probably two dozen other things.
I would think it also depends what you want for a credit rating on the top tranche.
If you are talking MBSs (agency) then it wouldn’t have credit risk as they are backed by the government. But as Joey said there is no way there will ask a question like that. Just know the basic concept, bigger support tranche offers more protection to PAC tranche.