Question: A CMO is being issued with 2 tranches: The A tranche will consist of $25M of principal and have a coupon of 7.5%. The B

A CMO is being issued with 2 tranches: The A tranche will consist of $25M of principal and have a coupon of 7.5%. The B tranche will have a coupon of 8% and a principal of $15M. The mortgages backing the security issued are FRM at a mortgage rate of 9% with 10 year maturities and annual payments. The issuer will receive cash flows only after all classes of investors have been paid according to schedule. There is no guarantee/servicer fee. Prepayments are assumed to be constant at 5% CPR. What is cash flow paid to tranche A in year 1? Round to cents. A. $5,124,501.47 B. $8,763,612.20 C. $7,576,286.98 D. $6,507,803.60 E. $10,982,639.21

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