Most protection from prepayment risk

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1. Construct a 30-year CMO using this mortgage pool as collateral (Coupon paid quarterly). There are 3 tranches:

A: $50 million with 8% coupon (least protection from prepayment risk)

B: $100 million with 9% coupon

C: $50 million with 10% coupon (most protection from prepayment risk)

What are the promised coupon payments to each of the classes during the first quarter? What is the total interest payment due?

2. If the trustee received a payment of $4,834,796, how would the payment be applied?

3. Assume that for the first year the trustee receives quarterly payments each of $8 million. Show how each of these payments is distributed (Create a table showing each class for four quarters)

Reference no: EM13937907

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