Accrual Tranche (CMO)

(e.g.) Investor's desired investment maturity and cash flow characteristics for CMO.

• investment maturity: long-term investment (average life greater than 5 years)
• cash flow characteristics: does not want to receive any cash flow from it for a number of years

Which type of CMO tranche would most likely meet this investor's desired investment maturity and cash flow characteristics?

A. An accrual tranche
B. A sequential-pay tranche.
C. A planned amortization class tranche.

A
Of the three, the accrual tranche typically receives principal only after all sequential-pay tranche and/or planned amortization class tranches have been paid off, meeting the investor's need for a long-term security.
Further, until its principal repayment begins, the accrual tranche does not pay interest but accrues it to principal, meeting the investor's need to not receive any cash flow for a number of years.