Consider the following CDO Structure:

Tranche Par Value Coupon Type Coupon Rate to be Offered at Issue

Super Senior $50,000,000$ Floating LIBOR $+20$ bps

Senior $20,000,000$ Fixed $10$ year Treasury $+75$ bps

Mezzanine $20,000,000$ Fixed $10$ year Treasury $+300$ bps

Subordinate$/$Equity $10,000,000--$

$$ The underlying bond portfolio $($collateral$)$ is $$100,000,000,$ where all bonds have

$10$ year maturities

$$ When the CDO was created, the $10$ year treasury rate was $75$ bps

$$ The CDO manager enters into an interest rate swap for the $$50,000,000$ super

senior tranche where the collateral manager agrees to pay a fixed rate of $10$ year

treasury $+50$ bps in exchange for receiving LIBOR.

$$ The CDO manager receives an annual fee of $$500,000$ to manage the trust

a$)$ What fixed interest rate would the CDO pay on the Super Senior tranche

after accounting for the swap?

b$)$ What is the total cash interest paid by the CDO annually?

c$)$ Suppose the CDO Subordinate$/$Equity tranche has an expected annual

return of $10\%.$ What was the average credit spread of the underlying bond portfolio when the CDO was created? $($Answer in bps to $1$ decimal place$)$