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) (3 marks) What fixed interest rate would the CDO pay on the Super Senior tranche after accounting for the swap? b) (3 marks) What is the total cash interest paid by the CDO annually? c) (5 marks) 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)