Regarding "Betting on Failure: Profiting from Defaults on Subprime Mortgages" (Kellogg)

Show the changes to the table in Exhibit 5, when

1. the principal received is $10/month instead of $5/month (the principal reductions remain the same)
2. the writedowns associated with earlier defaults are $20/month beginning in six months (the principal received remains $5/month)

Exhibit 5: Cash Flows from a Hypothetical CDS on MBS Transaction Mortgage Pooi Assumptions 1| Mortgage pool receives $5 in principal each month 0 Writedowns of $10t'month associated with earlier defaults will begin in six months MBS Assumptions 0 MBS consists only of a senior security S and a junior security J 0 Face value of S = $300; face value of] = $50 Credit Defauit Swap Assumptions 1- One-year CDS with reference bond S 0 Original notional value of swap transaction = $1,000 0 Swap spread = 7% Principal Outstanding Writedown on Face Value on Notional Size Fixed Swap Floating Rate Net Cash Flow Bonds Bondb of Swapc Payment Payment to Swap Buyer Month ($} {$) (3) ($} {3) ($} 0 300.00 1 ,000.00 1 0.00 295.00 933.33 5.83d 0.00 -5.83 2 0.00 290.00 966.67 5.74 0.00 -5.74 3 0.00 285.00 950.00 5.64 0.00 -5.64 4 0.00 280.00 933.33 5.54 0.00 5.54 5 0.00 275.00 916.67 5.44 0.00 5.44 6 0.00 270.00 900.00 5.35 0.00 5.35 7 0.00 265.00 833.33 5.25 0.00 -5.25 3 0.00 260.00 866.67 5.15 0.00 5.15 9 0.00 255.00 850.00 5.06 0.00 5.06 10 0.00 250.00 833.33 4.96 0.00 -4.96 1 1 10.00 235.00 733.33 4.36 33.33a 23.47 12 10.00 220.00 733.33 4.57 33.33 23.76 " Bond J suffers losses in Months 6 through 10. Losses on Bond 3 occur only after Bond J has been completely written off. " Principal payments and writedowns reduce outstanding face value. The notional size of swap adjusts in proportion to the change in face value of the underlying bond. " The xed payment based on the previous month's notional size of swap. For example, $5.33 = {7% i 12) ' $1,000. a The oating payment based on the fraction of the previous month's bond face value that has been written down. For example, $33.33 = [$10 i $250) " [$633.33]. 0 Annualized rate of return to swap buyer11 = 11.49%