here is a example:

Assume that the 10-year US Treasury rate at the time this CDO is issued is 7%.

Now, consider the annual cash flow for the first year for the CDO:

Collateral	+7%+4%= +11%	+11%*100m = +$11,000,000.
IRS+	+MRR%	+MRR%*80m
IRS-	-7%-1%= -8%	-8%*80m = -$6,400,000.
CDOsenior-	-MRR%-0.70%	(-MRR%-0.70%)*80m
CDOMez-	-7%-2%= -9%	-9%*10m = -$900,000
Total CDO structure		+3.14m
CDO mgr fee $640,000	-$640,000	+2.5m

now we change the number to 5%, answer these question:

Rework the CDO structure from Lecture 5 slide 43 with the following update 10 year US Treasury Rate at CDO issue is 5% cet par. Which leg of the strategy has decreased?

a. Collateral

b. IRS+

c. CDO Senior-

Was the CDO manager fee reduced

a. Yes , in this case

b. Not in this case

What is the equity tranche return =

18%

20%

23%

25%

Did the equity tranche decrease by the same bps as the 10 year note

a. No, not in this case

b. Yes, in this case

show all your works:)