Question
Assume there are 100 identical loans with a principal balance of $500,000 each. Based on a credit analysis, a 300 basis point spread is applied
Assume there are 100 identical loans with a principal balance of $500,000 each. Based on a credit analysis, a 300 basis point spread is applied to the borrowers. LIBOR is currently 4% and the coupon rate will reset annually. The senior, junior mezzanine, and equity tranches are 75%, 20%, and 5% of the pool, respectively. The spreads on the senior and junior mezzanine tranches are 2% and 6%. Equity investors can receive up to $1,000,000. Excess cash flow above $1,000,000 is diverted to a trust account. Assume the default rate is 2%. What are the cash flows to the mezzanine and excess trust account in the first period? Mezzanine Trust account A. $1,000,000 $0 B.$1,000,000 $180,000 C.$2,250,000 $200,000 D.$2,250,000 $250,000
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