Question: Consider a CMBS with the following characteristics (Same as Question 4 and Question 5): Backed by $20M mortgages, 7% interest, 5-yr maturity, IO annual payments,

Consider a CMBS with the following characteristics (Same as Question 4 and Question 5): Backed by $20M mortgages, 7% interest, 5-yr maturity, IO annual payments, no servicer fee There are three tranches issued: $13M Tranche A (Senior/Investment Grade CMBS) with coupon rate 5% $7M Tranche B (Junior/ Non-investment Grade CMBS) with coupon rate 6% IO residual tranche (no extra collateral, but collects extra interest) Now consider a situation where there is a recession in year 5. The SPV/issuer is only able to collect payments and sell the underlying collateral for a total of $18M. In other words, it only has $18M to disburse to its investors in year 5. In this scenario, what is the cash flow to Tranche B in year 5?

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