A bank pools 200 mortgages worth 250000 each and paying an annual interest

rate of 10% into a collateralised debt obligation, which it divides into three

tranches: a junior tranche that absorbs the first 5% of losses, a mezzanine

trance that absorbs the next 4% and a senior tranche that absorbs losses only

if the default rate exceeds 9%. Suppose 15 mortgages default. What will the

cash flow of the mezzanine tranche be?

(a) 150,000.

(b) 120,000

(c) 75,000.

(d) 0

The answer is B, how to calculate it?