Question: . . . A CMO is being issued with 2 tranches. The A tranche will consist of $50MM of principal and have a coupon

. . . A CMO is being issued with 2 tranches. The A tranche will consist of $50MM of principal and have a coupon of 7%. The B tranche will consist of $50MM of principal and have a coupon of 7%. The mortgages backing the security issued are FRM at 7% with 10 year maturities and annual payments (for simplicity). Priority payments will be made to the A tranche and will include the promised coupon. The B class will only receive interest payments until the A class is repaid. Assume there is no prepayment and no servicing fees. A) Given the information presented above, what is the total cash flow to each class of investors in year 1 (i.e. How much will class A receive and how much will Class B receive)? B) What is the balance of the Class A tranche at the end of year 3? C) What is the balance of the Class B tranche at the end of year 7?

Step by Step Solution

★★★★★

3.31 Rating (145 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

SOLUTION A CMO is being issued with 2 tranches The A tranche will consist of 50MM of principal and have a coupon of 7 The B tranche will consist of 50... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

A CMO is being issued with 2 tranches: - Tranche A has $18 million in principal and a 2% coupon. - Tranche B has $7 million in principal and a 2.8% coupon. The mortgages backing the security issued...

The MZ Mortgage Company is issuing a CMO with three tranches. The A tranche will consist of $40.5 million with a coupon of 8.25 percent. The B tranche will be issued with a coupon of 9.0 percent and...

Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...

Analyzing Revenues and Expenses and Completing an Income Statement Neighborhood Realty, Incorporated, has been operating for three years and is owned by three investors. S. Bhojraj owns 60 percent of...

A printing press priced at $280,000 is acquired by trading in a similar press and paying cash for the difference between the trade-in allowance and the price of the new press. a. Assuming that the...

Consider the following molecules: (a) CH 4 (b) NH 2 Cl (c) BF 3 (d) CS 2 (i) In which compound are the bonds most polar? (ii) Which compounds are not polar? (iii) Are the H atoms in NH 2 Cl negative...

Discuss the importance of sampling bias, access issues, and sample size.

The comparative income statements and balance sheets of Sarot, Inc., Compute the amount and percentage changes for the income statement, and comment on the changes from 2011 to 2012. Sarot, Inc....

8. Assume that the constant growth rate dividend discount model can be applied. You are given that the present value of growth opportunities (PVGO) for a firm is $5 per share. Its beta is 2.25, and...

Company A is a global company based in the United States that operates in the financial industry. Company A serves its customers with financial products, such as checking accounts, bank cards, and...

Portfolio return and beta Jamie Peters invested $100,000 to set up the following portfolio 1 year ago. Asset Cost Beta at purchase Yearly income Value today A $20,000 0.80 $1,600 $20,000 B 35,000...

Evaluate the ecological and economic importance of invertebrates in providing ecosystem services. Focus on at least three types of services, such as pollination, decomposition, and biological...

Discuss the evolutionary adaptations that have enabled various groups of invertebrates to survive and thrive in extreme environments such as deep-sea hydrothermal vents, arid deserts, and polar...

Discuss the impact of molecular techniques on modern plant taxonomy. How have methods such as DNA sequencing and molecular phylogenetics revolutionized the classification and understanding of plant...

Analyze the role of herbarium specimens in the field of plant taxonomy and their significance for biodiversity studies. How do herbaria contribute to the description and classification of plant...

Delve into the technical aspects of remote access controls, specifically RDP and SSH. Discuss the strengths and weaknesses of each protocol in terms of security. Share insights into the most...

Last month when Holiday Creations, Inc., sold 40.000 units, total sales were $287000, total variable expenses were $226,730, and fixed expenses were $39,500. Required: 1 What is the company's...

Reconsider Prob. 1474. In order to drain the tank faster, a pump is installed near the tank exit as in Fig. P1475. Determine how much pump power input is necessary to establish an average water...

Give the amplitude and sketch the graphs of the given functions. Check each using a calculator. y = sin x

Convert the hexadecimal number to decimal. 9D

Determine each of the following as being either true or false. If it is false, explain it why. 24 -1 3 1 = 2

Suppose that a statistician wants to test the hypothesis that the mean of a normally distributed population is .536 against the alternative that the mean is not equal to .536. He decides to use a =...

The same test is given to two classes of students in statistics. The first class (41 students) has a mean score of 75 with a sample variance of 100; the second class (21 students) has a mean score of...

An educator has developed a new IQ test and would like to compare it to a certain widely used IQ test. He gives both tests to a randomly chosen group of 5 students, with the following results: