A collateralized debt obligation is backed by a $50,000,000 collateral pool. The CDO structure is:

Tranche Par Value Coupon Rate Senior $30 million floating: Libor + 200 bps Mezzanine $10 million fixed: 12% Equity $10 million

The collateral manager enters into an interest rate swap for $30 million notional principal. Under the swap agreement, the manager will pay 4.0% fixed and receive Libor plus 50 bps.

If the total earnings on the collateral are $3 million in the first year, the funding available to pay the managers fee and to distribute to the equity tranche is closest to:

A) $1.2 million.

B) $0.

C) $150,000.