Given the following mortgage collateral and sequential-pay CMO:

Mortgage collateral = $100,000,000

Weighted average coupon rate (WAC) = 8%

Weighted average maturity (WAM) = 360 months

Estimated prepayment speed = 150 PSA

MBS pass-through rate = PT rate = 7.5%

Tranche A receives all principal payment from the collateral until its principal of $50 million is retired.

Tranche B receives its principal of $25 million after A’s principal is paid.

Tranche B receives interest each period equal to its stated coupon rate of 7.5% times its outstanding balance at the beginning of each month.

Tranche Z is an accrual bond that receives its principal of $25 million after B’s principal is paid

a. Complete the table:

b. Suppose the CMO has a PT rate of 7% on Tranche A, a PT rate of 6.5%
on Tranche B (Tranche Z’s rate stays at 7.5%), and a notional principal tranche. What would Tranche A’s and B’s interest receipts be in the first month? What would the notional principal tranche’s cash flow be in the first month? What would be the quoted principal on the notional principal tranche?

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Month Collateral Collateral Collateral A A A B B B Z Z Z 1 Balance Interest Principal Balance Interest Principal Balance 100,000,000 625,000 92,116 Principal Interest Balance Principal Interest 2 99,907,884 624,424 117,586 70 71 61,458,838 384,118 549,863 677,588 4,235 677,588 25,000,000 28,525 156,250 35,781,250 60,908,975 380,681 545,475 111 42,171,175 263,570 395,531 0 24,971,475 701,725 156,071 35,937,500 0 0 0 0 0 0 0 0 0 0 042,171,175 395,531 263,570