问题如下：
In a declining interest rate environment, compared with a CMO’s Class A tranche, its Class C tranche will be repaid:
选项：
A. earlier.
B. at the same pace.
C. later.
解释：
A is correct. Lower interest rates entice homeowners to pay off their mortgages early because they can refinance at lower rates. The most junior tranche in a CMO will bear the first wave of prepayments until that tranche has been completely repaid its full principal investment. At that point, the next tranche will bear prepayments until that tranche has been fully repaid. Therefore, the Class C tranche of a CMO will be repaid before the more senior Class A tranche.
B is incorrect because the tranches, which have different priorities of claims on the principal payments made by the underlying mortgages, will see prepayments allocated to the most junior tranches first and the most senior tranches last.
C is incorrect because the most junior tranche in a CMO will bear the first wave of prepayments until that tranche has been completely repaid its full principal investment. At that point, the next tranche will bear prepayments until that tranche has been fully repaid. Therefore, the Class C tranche will be repaid prior to, not after, the Class A tranche. 30
