A bank uses its mortgage loans of $600 million as collateral to issue two different trenches of securities (CMOs) in mortgage markets, Trench A and Trench B. The information is given below. Assume the coupon payment is made annually.

Loan value: $600 million

Interest rate: 6.5%

Maturity: 10 years

CMOs: Par value Interest rate

Trench A $350 million 4.5%

Trench B $250 million 6.25%

1. Please estimate the profits from the CMO.
2. The bank would like to make a profit of $20 million from the CMO by adjusting the interest rate for Trench B. Please estimate what should be the new interest rate.