Question 17

TD Bank issues a CMBS. The mortgage poolconsists of interest only loans, with a totalloan amount of $12 million. Assume the mortgage rate is 10%, the mortgages areannually compounded, and the loan maturity is 4 years. There are three tranches in the CMBS: 1.Tranche A, with anamount of$9 millionat 8% coupon rate, 2. Tranche B, with an amount of $2 million at 10% coupon rate, and 3. the residual tranche, with $1 million. Thematurity of the MBS securities is4 years. Suppose the value of the properties in the mortgage pool at the end of 4th year is worthy of only 80% of the originalloanamount indicated above. What is the investor return for Tranche B for the 4 year period?

8.77%

-8.47%

-5.12%

10.00%