Mutual Bank issues a $23 million collateralized mortgage obligation (CMO). There are 4 tranches in the CMO as follows.

Tranche	Total bond value	Interest rate
A	$5 million	2.5%
B	$5 million	3.5%
C	$6 million	4.5%
D	$7 million	5.5%

In the first month a total payment of $600,000 is received from the borrowers.

A.Calculate the interest payments to each of the four tranches A, B, C and D.

B.How much of the bond value will be redeemed in each of the four tranches after the first month payment is received.

Answer rating: 100% (QA)

A To calculate the interest payments to each tranche multiply the total ... View the full answer