Assume you set up a REMIC that guaranteed that the class B tranche would bear all the

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Assume you set up a REMIC that guaranteed that the class B tranche would bear all the credit risk, and the class A tranche would lose only if the class B tranche holders were not repaid. What is the maximum interest rate you could offer the class B tranche holders and still make a profit from securitizing the loans if the class A tranche buyers were willing to accept a 7 percent return on their 90 percent interest in a pool of mortgages that generated an 8 percent interest return? (The class B holders would hold the other 10 percent interest in the pool.)

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Financial Institutions, Markets and Money

ISBN: 978-1119330363

12th edition

Authors: David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard W. Sias

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