The Following Information Is for a Collateralized Mortgage Obligation (CMO)

question 9

Multiple Choice

The following information is for a collateralized mortgage obligation (CMO) .Tranche A has a face value of $110 million and pays 5 percent annually.Tranche B has a face value of $90 million and pays 7 percent annually.

If at the end of the first year,the CMO trustee receives total cash flows of $15 million,how are they distributed?

• A)$7.5 million to Tranche A and $7.5 million to Tranche B.
• B)$15 million to Tranche A and nothing to Tranche B.
• C)$5.5 million to Tranche A and $9.5 million to Tranche B.
• D)$8.7 million to Tranche A and $6.3 million to Tranche B.
• E)$7.1 million to Tranche A and $7.9 million to Tranche B.

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Definitions:

Delta

A nearly flat tract of land formed by deposition of sediment at the mouth of a river or stream.

Seafloor

Oceanic bedrock covered by marine sediments, featuring underwater landforms such as valleys, volcanoes, and ridges.

Coastline

The coastline is the area where land meets the sea, characterized by its shape and features influenced by various geological processes.

Shoreline

The boundary line between land and a body of water.