QUESTION 1 [The following information applies to the entirety of this problem set]. The MZ Mortgage Company is issuing a CMO with three tranches. The A tranche will consist of $40.5 million with a coupon of 8.25%. The B tranche will be issued with a coupon of 9.0% and a principal of $22.5 million. The Z tranche will carry a coupon of 10.0% with a principal of $45 million. The mortgages backing the security issue were originated at a fixed rate of 10% with a maturity of 10 years (annual payments). The issue will be overcollateralized by $4.5 million, and the issuer will receive all net cash flows after priority payments are made to each class of securities. Priority payments will be made to the class A tranche and will include the promised coupon, all amortization from the mortgage pool, and interest that will be accrued to the Z class until the principal of $40.5 million due to the A tranche is repaid. The B class securities will receive interest only payments until the A class is repaid, and then will receive priority payments of amortization and accrued interest. The Z class will accrue interest at 10% until both A and B classes are repaid. It will receive current interest and principal payments at that time.

What is the total value of the collateral (i.e., all the mortgages backing the securities) in millions of $? (for example, $120,500,000 is 120.50 million dollar, enter just 120.50) 1 points Save Answer

QUESTION 2 What will be the WAC (in %) of the CMO when issued? [Hint: ignore the equity (i.e., overcollateralization) when calculating the weights]. 1 points Save Answer

QUESTION 3 What will be the maturity (in years) of the A tranche (i.e., the year in which the tranche receives its last principal payment) assuming no prepayment? 1 points Save Answer

QUESTION 4 What will be the maturity (in years) of the B tranche (i.e., the year in which the tranche receives its last principal payment) assuming no prepayment? 1 points Save Answer

QUESTION 5 What will be the WAC (in %) of the CMO at the end of year 3 assuming no prepayment? 1 points Save Answer

QUESTION 6 What will be the WAC (in %) of the CMO at the end of year 4 assuming no prepayment? 1 points Save Answer

QUESTION 7 What will be the WAC (in %) of the CMO at the end of year 8 assuming no prepayment? 1 points Save Answer

QUESTION 8 If the class A investor demands an 8.25% yield, what price should MZ mortgage company ask for the A tranche (in millions)? 1 points Save Answer

QUESTION 9 If the class A investor demands an 8.5% yield, what price should MZ mortgage company ask for the A tranche (in millions)? 1 points Save Answer

QUESTION 10 If the class B investor demands a 9.5% yield, what price should MZ ask for the B tranche (in millions)?