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\f1. Consider Exhibit 5 (Cash Flows on the CDS). 1. Principal Repayments (on the mortgages) and Principal Writedownson the Bonds will both reduce the Outstanding Face Amount of the Bonds. 2. The Notional Principal on the CDS is 1000 initially. It declines proportionately to the amount of Outstanding Face Amount of the Bonds. 3. The Fixed Swap Payment is essentially the \"insurance premium\" and is tied to the Notional Principal on the CDS. 4. The Floating Swap Payment is what the buyer of the CDS receives as compensation for losses and is tied to the Principal Writedownson the Bonds. 2. Replicate the Table in Exhibit 5 under the following set of assumptions: 1. Principal received is $10/month (rather than $5/month). Principal Writedowns remain the same as in the base case. 2. Principal received remains at $5/month, butwritedownsassociated with earlier defaults rise to $10/month in Month 8 and $20/month in Months 9 through 12. 3. Calculate the (annualized) IRR for the base case and (2a) and (2b). *Additional instructions found on bottom of other attachment