In a certain CMBS issue, $500 million of senior securities and $100 million of mezzanine (junior) securities are issued.The coupon on the senior securities is 7% and that on the mezzanine is 9%.The average contractual interest rate in the underlying mortgage pool is 10% and the mortgages in the pool are interest-only.Assuming annual interest payments, the pool is not overcollateralized, and no par value retired or defaulted, how much residual interest will be available for an IO tranche from these two par-valued tranches at the end of the first year?

Answer rating: 100% (QA)

To calculate the residual interest available for an IO InterestOnly tranche we need to consider the coupon rates and the par values of the senior and ... View the full answer