B$.$ Mighty Alpha Corp. is considering issuing the following two CMO structures:

Structure I:

Tranches A$-$E are a sequence of PACI and $F$ is the support tranche.

Structure II:

Trances A$-$E are a sequence of PAC I, F is a PAC II$,$ and G is a support trances without a

schedule.

a$.$ In Structure II tranche $G$ is created from tranche $F$ in Structure I. What is the

coupon rate for tranche $G$ assuming that the combined coupon rate for tranches

$F$ and $G$ in Structure II should be $8\mathrm{.}5\%?(3$ marks$)$

b$.$ What is the effect on the value and average life of tranches A$-$E by including

the PAC II in Structure II$?(1$ mark$)$

c$.$ What is the difference in the average life variability of tranche $G$ in Structure II

and tranche $F$ in Structure I? $(1$ mark$)$