Question
BOA issues $200m in CMO. 75% of the issue is floater tranche with index = LIBOR (currently 6%) and margin = 1%. The remaining 25%
BOA issues $200m in CMO. 75% of the issue is floater tranche with index = LIBOR (currently 6%) and margin = 1%. The remaining 25% is inverse floater tranche that is designed to keep the total cost of financing constant. The next year LIBOR falls to 4%. What would be the interest paid to the inverse floater tranche investors? Enter your answer in percent, but without percent sign.
I believe I got 13%, but not sure if that's right. Can someone please point me in the right direction?
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International Financial Management
Authors: Jeff Madura, Roland Fox
5th Edition
1473770505, 978-1473770508
