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Asset Pool: 20-year, 9% fixed rate Mortgages = $1,800,000 Over-collaterization = $400,000 Tranche Stated maurity Coupon rate Amount issued A 7 7.00% 500,000 B 11
Asset Pool: 20-year, 9% fixed rate Mortgages = $1,800,000 Over-collaterization = $400,000
| Tranche | Stated maurity | Coupon rate | Amount issued |
| A | 7 | 7.00% | 500,000 |
| B | 11 | 8% | 400,000 |
| C | 13 | 9.50% | 300,000 |
| Z | 20 | 10% | 200,000 |
There is no prepayment risk in the mortgage pool. a) Determine the annual cash flows to Tranche A. b) Determine the annual cash flows to Tranche C. c) Determine the annual cash flows Tranche Z. d) Determine the annual residual cash flow to equity. e) Suppose the investment market is pricing the risk of Tranche C at 8%. Determine the fair market value of Tranche C.
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