Suppose you have the following information for an auto loan ABS. Using the information in the bulleted list below, find

a. The weighted average life for the pool, Tranche A and Tranche B

b. Using a B rate =5%, what is the value of the excess servicing?

Total loan pool = $2,000,000

Term = 4 years

(Weighted average) Loan rate = 3.5%; market yield =3.5%

Servicing cost =1.50%

PD=20%; LGD=40%; $40,000 buffer over expected loss for B tranche

1. You need to determine the size of Tranche B (Hint: PDxLGDx Loan pool + buffer)

2. Tranche A = Total Loan Pool - Tranche B

A tranche rate =1.00%