4) Download the RE611_CMOs.xls spreadsheet from the class website. The default inputs are $200 pool size, 7.50% coupon rate on pool, 10-year term of loans, 0% prepayment rate (fixed prepayment rate = 1), $50 ,000 ,000 Class A bonds with a 4.00% coupon, $75,000,000 Class B bonds with a 6.00% coupon, and $50,000 ,000 Class Z bonds with a 7.75% coupon. Look at the last tab on the spreadsheet labeled "CMO Prices." This shows the value of each of the tranches as a percentage of par (face) value. Notice that each security is priced at par (1.00) when the discount rate is equal to the coupon rate on the security. In addition, the value of each security is decreasing in the discount rate, just as it is with all fixed-income securities. a) Based on this chart, which tranche is the most sensitive to interest rate (discount rate) movements? Why do you think this is the case? b) Now change the prepayment rate to 10% (on the "CMO Structure" tab). How does this increase in the prepayment rate affect the CMO Prices chart? (You may also want to look as the cash flows values table on the "Pool Cash Flows" tab.) Do the securities become more or less sensitive to interest rate movements? Which security is affected the most by this change in the prepayment rate? Why?