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You have been assigned to calculate how much money each Tranche will receive. There are 10 mortgages in a pool. Each mortgage has a value of $10,000,000 for a total pool of $100,000,000. Each mortgage is an interest only mortgage paying a 6% interest rate. Half of the mortgages will mature this year and half of them will mature next year. An A Tranche has been established with a par of $75,000,000 and a coupon of 4%. A B Tranche has been established with a par of $25,000,000 and a coupon of 6%. Finally, an Interest Only Tranche has also been established. 3 mortgages default after the first year. Investors will only recover half of the value of each of these 3 mortgages.
1. Calculate scheduled and received cash flows for each Tranche and the Pool as a whole for both years.
2. Explain why Tranche A has a lower coupon rate than Tranche B.
3. Explain how an Interest Only Tranche can be created and why this is the only bond in the world that's value goes down as interest rates go down.
This model will have two inputs: σ and μ. Use the inverse transform method to create a series of normal variables with a mean of μ and standard deviation of σ.
a six-year us government bond i.e. face value is 1000 makes annual coupon payments of 5 and offers a yield of 3
1.calculate future value of 5600 received today and deposited at 9 percent for three years.2.calculate the present
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A company's 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $577.36. The company's federal-plus-state tax rate is 35%. What is the firm's after-tax component cost of debt for purposes of calcu..
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