Answer ALL CORRECTLY

D). A collateralized mortgage obligation (CMO) security has a floating rate tranche C. Tranche C has been split to create a floater with a principal of Sh.80,416,667 and an inverse floater with a principal of Sh. 16,083,333 as shown below: Tranche Par Amount (Sh.) Coupon (%) A 194,500,000 7.50 B 36,000,000 7.50 C Floater 80,416,667 Inverse floater 16,083,333 D 73,000,000 7.50 Required: i) Determine the capitalisation rate for the inverse floater if the coupon rate for the floater is I month LIBOR plus 1%. ii) Determine the capitalisation rate on the floater assuming that the coupon formula for the floater is 1 month LIBOR plus 1% and a floor of zero is imposed on the inverse floater.QUESTION 5 c) Theresa Mwende works for a firm that deals with non-conforming residential mortgages. She has assembled Sh. 80 million pool of 30 year-fixed rate mortgages with unusually high loan -to-value (LTV) ratios. Theresa Mwende meets with a potential investor who inquires about the pool created from these securities. Mwende explain to the client that the pool has weighted average coupon (WAC) of 7.10% and a weighted average maturity (WAM) of 356 mouths and that under current market conditions, prepayments are expected at 310 PSA (Public Security Association Standard Prepayment Model). Mwende also presents a table showing pool cash flow estimates for a different prepayment assumption.An extract of that table is given below: Mortgage pool monthly cash flow estimates Months Mortgage Outstanding Net Scheduled from now payment balance interest principal 24 Sh.327.321 Sh.47,563.831 Sh.281.419 Sh.45.901 The single monthly mortality (SMM (prepayment rate is assumed to be 2.1482% Required: The conditional prepayment Rate (CPR) for the pool. ii. The expected prepayment amount for month 24 of the pool's life.QUESTION 3 c) A portfolio consists of 100 credits, each having a notional value of Sh.10 million. An investor is interested in a tranche having the notional value of Sh.50 million with an attachment of 5% and a width of 2%. The spread is 150 basis points. The recovery rate is 40%. The tranche will not experience any loss until there are nine defaults. Required: i. .Calculate the amount paid by the protection seller to the protection buyer. ii. Calculate the amount paid by the protection buyer to the protection seller