An issuer is considering the following two CMO structures. The first structure is:

Tranches A to E are a sequence of PAC I€™s and F is the support bond. The second structure is:

Tranches A to E are a sequence of PAC I€™s, F is a PAC II, and G is a support bond without a PAC schedule.
Answer the below questions.
(a) In structure II, tranche G is created from tranche F in structure I. What is the coupon rate for tranche G assuming that the combined coupon rate for tranches F and G in structure II should be 8.5%?
(a) In structure II, tranche G is created from tranche F in structure I. What is the coupon rate for tranche G assuming that the combined coupon rate for tranches F and G in structure II should be 8.5%?
(b) What is the effect on the value and average life of tranches A to E by including the PAC II in structure II?
(c) What is the difference in the average life variability of tranche G in structure II and tranche F in structure II?

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StructureI Tranche Par Amount (in millions) S150 S100 S200 $150 $100 $500 Coupon Rate (%) 6.50% 6.75% 7.25% 7.75% 8.00% 8.50% Structure II Tranche Par Amount (in millions) $150 $100 $200 $150 $100 $200 Coupon Rate (%) 6.50% 6.75% 7.25% 7.75% 8.00% 8.25%