Question
You construct FL-IFL tranches with a fixed rate bond as its collateral. Par value of collateral is 50 million and the coupon rate of the
You construct FL-IFL tranches with a fixed rate bond as its collateral. Par value of collateral is 50 million and the coupon rate of the bond is 6%. The structure for FL-IFL is as the following:
Tranche Par Value Coupon Rate (%)
FL 25 mil 2 + T-bill Rate
IFL 25 mil 10 T-bill Rate
In month 100, we have the following information regarding the collateral:
Balance Principal Payment Interest Payment
Month 100 $14,824,845 $2,912,203 $74,124.23
Compute the following items in month 100 for FL and IFL: 1) beginning balances, 2) principal payments, and 3) interest payments. Assume the annual T-bill rate to be 3%.
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