Question: Consider a CMO with Interest Only (IO) and Principal Only (PO) tranches that is backed by a pool of $10 thousand in fully amortizing mortgages.

Consider a CMO with Interest Only (IO) and Principal Only (PO)

Consider a CMO with Interest Only (IO) and Principal Only (PO) tranches that is backed by a pool of $10 thousand in fully amortizing mortgages. Mortgages are fixed rate at 4.5% with 10 year maturity and annual payments. Suppose that no prepayment is expected and there are no servicing fees. How much do investors in the IO tranche receive in year 1? Round your answer to two decimal points (e.g. if your answer is $1,234,567.8901, write 1234567.89 )

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