Question
Please show your work. A group of loans pooled for securitization is expected to yield a return of 22%. The coupon rate promised to investors
Please show your work. A group of loans pooled for securitization is expected to yield a return of 22%. The coupon rate promised to investors on securities issued against the pool of loans is 7%. The default (charge-off) rate on the pooled loans is expected to be 4.2%. The fee to compensate a servicing institution for collecting payments on the loans is 1.8%. Fees to set up credit and liquidity enhancements are 2.2%. The fee for advice on how to set up the pool of securitized loans is 1.2%. What is the residual income (%) on this pool of loans?
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