Question: A CMO is being issued with 2 tranches: The A tranche will consist of $25M of principal and have a coupon of 6.5%. The B

A CMO is being issued with 2 tranches:

The A tranche will consist of $25M of principal and have a coupon of 6.5%.

The B tranche will have a coupon of 7% and a principal of $15M

The mortgages backing the security issued are FRM at a mortgage rate of 8% 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. $8,763,612.23

C. $6,386,179.55

D. $7,501,805.60

E. $10,982,639.21

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