1. A CMO has been issued with 3 tranches and a residual. At origination:

   - Tranche A investors own $59 million of principal with a coupon rate of 3.50%.

   - Tranche B investors own $6 million of principal with a coupon rate of 3.70%.

   - Tranche Z investors own $14 million of principal with a coupon rate of 4.50%.

   - The residual carries $1 million and receives all residual payments.

   Mortgages backing the security issued are fully amortizing fixed rate with mortgage rate of 4.50% with 30 year maturities and monthly payments. Assume no servicing/guarantee fee and no prepayments.

   What is the balance on the Z-tranche at the end of the first month (same as the balance at beginning of the second month)? Round your answers to cents (e.g. if your answer is $56000.0444, write 56000.04).

5 points

QUESTION 19

1. A CMO has 3 tranches, A, B, and Z (an accrual tranche), as well as a residual class. If the prepayment in the pool of mortgages that supports the CMO increased from CPR 5% to CPR 10%, what would happen to the expected maturity of the B class?

   		Cannot be determined with the information given
   		Decrease
   		Remain the same
   		Increase