Question: A Collateralized Mortgage Obligation (CMO) is created from a pool of fixed rate residential loans all of which pay 7% interest. For simplicity, the loans

A Collateralized Mortgage Obligation (CMO) is created from a pool of fixed rate residential loans all of which pay 7% interest. For simplicity, the loans mature in 10 years, (are self-amortizing), and have annual payments. There is no over-collaterization. The issuer will received cash flow only after all other classes are fully satisfied. Assume there are no prepayments and no servicing fees. For

a. Tranche A will receive its interest, all principal payments until it is repaid and any additional cash flow into the pool.

b. Tranche B will receive its interest payments only until A is completely repaid, then will receive principal payments and any additional cash flow into the pool.

c. Interest will accrue to the Z tranche until Tranche A and B are completely repaid. After, Z tranche will receive current interest and principal payments.

Based on the below Table, what will Tranche A’s balance be at the end of the first year? (answers are rounded to nearest dollar)

A. 0

B. 1,800,000

C. 6,165,200

D. 11,390.200

E. 21,384,800

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ANS WER C 6 165 200 WORK ING The C MO has a par value of 10 million ... View full answer

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