1. Consider a sequential pay CMO that is backed by 60 mortgages with an average balance of $100,000 each. The mortgages have monthly payments with WAM = 15 years and WAC = 8%. There is a servicing fee of 0.3% and prepayment is according to 100% PSA. There are two tranches in this CMO: tranch A issued for $4,000,000 and tranche B issued the rest of the amount. How much cash flow do investors in tranche A receive in the first month?

2.

Using the same CMO as in Question 7 and suppose that in month 10, the beginning balance on tranche A is $3,795,675 and the beginning balance on tranche B is $2,000,000. How much cash flow do investors in tranche A receive in month 10?

3.

Consider a sequential pay CMO that is backed by 150 mortgages with average balance of $100,000 each. The mortgages have monthly payments with WAM = 15 years and WAC = 5%. There is a servicing fee of 0.6% and prepayment is according to 150% PSA. There are two tranches in this CMO: tranche A issued for $4,000,000 and tranche B issued for $11,000,000. How much cash flow do investors in tranche A receive in the first month?

4.Consider the same CMO as in Question 3. How much is starting balance for tranche A investors in month 2?

Mark all the true statements about CMOs:

		CMO can be agency or non-agency MBS
		In a sequential pay CMO with just an A and B tranches, all tranches get principal payments in the first month
		In a sequential pay CMO, the tranche that gets paid last assumes the least default risk
		In a sequential pay CMO, the tranche that gets paid off first is considered the safest
		CMO can have several classes (tranches) of securities backed by the same pool of mortgages