The MZ Mortgage Company is issuing a CMO with three tranches. The A tranche will consist of $40.5 milliion with a coupon of 8.25 percent. The B tranche will be issued with a coupon of 9.0 percent and a principal of $22.5 million. The Z tranche will carry a coupon of 10.0 perecent with a principal of $45 million. The mortgages backing the security issue were originated at a fixed rate of 10 percent with a maturity of 10 years (annual payments). The issue will be overcollateralized by $4.5 million, and he issuer will receive all net cash flows after priority payments are made toeach class of securities. Priority payments wll be made to the class A tranche and will include the promised coupon, all amortization from the mortage pool, and interest that will be accrued to the Z class until the principal of $40.5 million due to the A tranche is repaid. The B class securities will receive intereest only payments until the A class is repaid, and then will receive priority payments of amortization and accrued interest. The Z class will accrue interest at 10 perecent until both A and B classes are repaid. It will receiv e current interest and principal payments at that time.

Part 1: assume no prepayments. Construct the sequence of pool cash flows (interest and principal) and outstanding pool balance for Year 0-Year 10. Put these answers in the Part 1 Pool tab. Construct the sequence of tranche cash flows and outstanding balances for tranches A, B, and Z, and the residual. Put these answers in the Part 1 Bonds tab. Compute the expected IRR for the residual/equity tranche.

Part 2: assume 10% annual prepayment rate. Construct the sequence of pool cash flows (interest and total principal (scheduled and prepaid)) and outstanding pool balance for Year 0-Year 10. Put these answers in the Part 2 Pool tab. Construct the sequence of tranche cash flows and outstanding balances for tranches A, B, and Z, and the residual. Put these answers in the Part 2 Bonds tab. Compute the expected IRR for the residual/equity