Assume the following structure of a CMO Tranche A B ii) C D Total Par Amount...
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Assume the following structure of a CMO Tranche A B ii) C D Total Par Amount 100,000,000 50,000,000 96,500,000 73,500,000 320,000,000 Coupon rate 7.5% 7.5% 7.5% 7.5% Suppose tranche C is split to create a floater with a principal of Kshs.80,416,667 and an inverse floater with a principal of Kshs.16,083,333 0.7375-0101 Fixed rate=1% Coupon rate = 7-5% = 0.065 Required: i) What would be the cap rate for the inverse floater if the coupon rate for the floater is 1-month libor plus 1%. (10 marks) Assuming that (1) the coupon formula for the floater is 1-month libor plus 1% and (2) a floor is imposed on the inverse floater of zero, what would be the cap rate on the floater? (5 marks) Assume the following structure of a CMO Tranche A B ii) C D Total Par Amount 100,000,000 50,000,000 96,500,000 73,500,000 320,000,000 Coupon rate 7.5% 7.5% 7.5% 7.5% Suppose tranche C is split to create a floater with a principal of Kshs.80,416,667 and an inverse floater with a principal of Kshs.16,083,333 0.7375-0101 Fixed rate=1% Coupon rate = 7-5% = 0.065 Required: i) What would be the cap rate for the inverse floater if the coupon rate for the floater is 1-month libor plus 1%. (10 marks) Assuming that (1) the coupon formula for the floater is 1-month libor plus 1% and (2) a floor is imposed on the inverse floater of zero, what would be the cap rate on the floater? (5 marks)
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