12. Calculation Problem (10 points): Suppose we have a collateralized debt obligation for the special purpose entity. It totally collected $1 billion from the investors, and the interest rate is 12%. Assume the special purpose entity is splited into 1 million shares. The senior tranche gets 350,000 shares, the mezzannie tranche gets 250,000 shares, and the equity tranche gets 400,000 shares. How much return the three tranches will get each year? If there are 20% of borrowers start to default, and there's only 50% recovery, what are the returns for each of the tranche per year? How about when 90% of borrowers defaulting, and there's only 50% recovery? Assume the reture rate for the senior tranche is 6%, and for the mezzannie tranche is 7%. H 12. Calculation Problem (10 points): Suppose we have a collateralized debt obligation for the special purpose entity. It totally collected $1 billion from the investors, and the interest rate is 12%. Assume the special purpose entity is splited into 1 million shares. The senior tranche gets 350,000 shares, the mezzannie tranche gets 250,000 shares, and the equity tranche gets 400,000 shares. How much return the three tranches will get each year? If there are 20% of borrowers start to default, and there's only 50% recovery, what are the returns for each of the tranche per year? How about when 90% of borrowers defaulting, and there's only 50% recovery? Assume the reture rate for the senior tranche is 6%, and for the mezzannie tranche is 7%. H