Corporate Bonds
A companion tranche in a CMO structure:
Companion (support) tranches absorb the prepayment and extension risk that PAC and TAC tranches are protected from. When prepayments are higher than expected, companion tranches receive the excess. When prepayments are l
Complete Analysis & Legal Rationale
Companion (support) tranches absorb the prepayment and extension risk that PAC and TAC tranches are protected from. When prepayments are higher than expected, companion tranches receive the excess. When prepayments are lower, companion tranche payments slow down. This makes them the most volatile but highest-yielding CMO tranches.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing concept in the explanation.
Does not match the governing concept in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing concept in the explanation.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.