Consider the following CDO transaction The CDO structure is $500 million The collateral pool entirely consists of bonds with 10 years to maturity and a coupon rate of LIBOR plus 500 basis points The senior tranche is $350 million and pays interest equal to the 10 year Treasury rate plus 120 basis points There are two junior tranches junior tranche 1 is $60 million and pays interest at LIBOR plus 300 basis points junior tranche 2 is $40 million and pays interest at a fixed rate of 12 The CDO manager enters into a swap agreement under which it will pay the counterparty LIBOR minus 25 basis points and receive the 10 year Treasury rate The notional principal on the swap is $350 million Assume all payments are made annually Assume that LIBOR is 5 at the time the CDO is issued Assuming no defaults and ignoring the asset management fee, what is the cash flow for the first year and how is it distributed between the three tranches and equity Note the Treasury rate is purposefully not given

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Consider the following CDO transaction: The CDO structure is $500 million. The collateral pool entirely consists of bonds with 10 years to maturity and a

Consider the following CDO transaction:
- The CDO structure is $500 million. The collateral pool entirely consists of bonds with 10 years to maturity and a coupon rate of LIBOR plus 500 basis points.
- The senior tranche is $350 million and pays interest equal to the 10-year Treasury rate plus 120 basis points
- There are two junior tranches: junior tranche 1 is $60 million and pays interest at LIBOR plus 300 basis points; junior tranche 2 is $40 million and pays interest at a fixed rate of 12%
- The CDO manager enters into a swap agreement under which it will pay the counterparty LIBOR minus 25 basis points and receive the 10-year Treasury rate. The notional principal on the swap is $350 million.
- Assume all payments are made annually.

Assume that LIBOR is 5% at the time the CDO is issued. Assuming no defaults and ignoring the asset management fee, what is the cash flow for the first year and how is it distributed between the three tranches and equity? Note: the Treasury rate is purposefully not given.