Question
1. BOA issues $400m in CMO. 50% of the issue is floater tranche with index = LIBOR (currently 1%) and margin = 2%. The remaining
1. BOA issues $400m in CMO. 50% of the issue is floater tranche with index = LIBOR (currently 1%) and margin = 2%. The remaining 50% is inverse floater tranche that is designed to keep the total cost of financing constant. The next year LIBOR goes up to 3%. What would be the interest paid to the floater tranche investors? Enter your answer in percent, but without percent sign. Hint: its a short question, not many calculations needed.
2. BOA issues $200m in CMO. 75% of the issue is floater tranche with index = LIBOR (currently 6%) and margin = 1%. The remaining 25% is inverse floater tranche that is designed to keep the total cost of financing constant. The next year LIBOR falls to 4%. What would be the interest paid to the inverse floater tranche investors? Enter your answer in percent, but without percent sign.
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Enterprise Risk Management In Finance
Authors: David L. Olson, Desheng Dash Wu
1st Edition
1349691038, 978-1349691036
