Question
Consider a CMO with tranches A, B and a residual. The CMO is backed by a pool of fully amortizing fixed rate mortgages with monthly
Consider a CMO with tranches A, B and a residual. The CMO is backed by a pool of fully amortizing fixed rate mortgages with monthly payments. Assume that there is a servicing fee and some anticipated prepayment. What is the correct formula for computing cash flows to the residual tranche?
| (Scheduled Payment) + (Prepayment) - (Servicing Fee) - (Cash Flow to Tranche A) - (Cash Flow to Tranche B) | ||
| (Scheduled Payment) + (Prepayment) - (Cash Flow to Tranche A) - (Cash Flow to Tranche B) | ||
| (Scheduled Payment) + (Prepayment) + (Servicing Fee) - (Cash Flow to Tranche A) - (Cash Flow to Tranche B) | ||
| (Scheduled Payment) + (Servicing Fee) - (Cash Flow to Tranche A) - (Cash Flow to Tranche B) |
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