seven con- secutive months. Will this disrupt the schedule of principal repayments? The answer is: it depends! There are two pieces of information we will need to answer this ques- tion. First, when does the 500 PSA occur? Second, what has been the actual prepayment experience up to the time that prepayments are 500 PSA? For example, suppose six years from now is when the prepayments reach 500 PSA, and also suppose that for the past six years the actual pre- payment speed has been 90 PSA every month. What this means is that there are more bodyguards (i.e., support bonds) around than was expected when the PAC was structured at the initial collar. In establishing the schedule of principal repayments, it is assumed that the bodyguards would be killed off at 300 PSA. But the actual prepayment experience results in them being killed off at only 90 PSA. Thus, six years from now when the 500 PSA is assumed to occur, there are more bodyguards than expected. Thus, a 500 PSA for seven consecutive months may have no effect on the ability of the schedule of principal repayments to be met. In contrast, suppose that the actual prepayment experience for the first six years is 300 PSA (the upper collar of the initial PAC collar). In this case, there are no extra bodyguards around. As a result, any pre- payment speeds faster than 300 PSA, such as 500 PSA in our example, jeopardize satisfaction of the principal repayment schedule and increase contraction risk. What this means is that the prepayment protection is reduced. It should be clear from these observations that the initial collars are not particularly useful in assessing the prepayment protection for a sea- soned PAC bond. This is most important to understand, as it is common for CMO buyers to compare prepayment protection of PACs in different CMO structures, and conclude that the greater protection is offered by the one with the wider initial collars. This approach is inadequate because it is actual prepayment experience that determines the degree of prepayment protection going forward, as well as the expected future prepayment behavior of the collateral. The way to determine this protection is to calculate the effective col- lar for a PAC bond. An effective collar for a PAC is the lower and the upper PSA that can occur in the future and still allow maintenance of the schedule of principal repayments.     The effective collar changes every month. An extended period over which actual prepayments are below the upper range of the initial PAC col- lar will result in an increase in the upper range of the effective collar. This is because there will be more bodyguards around than anticipated. An extended period of prepayments slower than the lower range of the initial PAC collar will raise the lower range of the effective collar. This is because