Question 3

Given the following information about a CMO:

- $2 million of mortgage pool principal assigned to the floater class. $8 million assigned to the inverse floater class.

- Floater class coupon rule: LIBOR + 0.2%

- Inverse floater class coupon rule: 12.5% - L x LIBOR

- LIBOR in the first month is 3%

What is the coupon leverage L? Round your answer to two decimal points (e.g. if your answer is 1/3, write 0.33).