QUESTION 14

A CMO is created with one Floater and one Inverse Floater class. The CMO is backed by a mortgage pool of which, at origination, the Floater class holds 50 million in principal and the Inverse Floater class holds 23 million in principal. At origination, the floater class has a coupon rate of 2% and the collateral's coupon rate (the mortgage pool's WAC) is 5%. What is the inverse floater's coupon rate at origination? Give your answer as a percentage (if your answer was two percent, enter 2.00).