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

question 2

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.

What is the principal outstanding on Tranche A and Tranche B after the end of year payment in the previous question?

• A)$110 million on Tranche A and $90 million on Tranche B.
• B)$95 million on Tranche A and $90 million on Tranche B.
• C)$106.8 million on Tranche A and $90 million on Tranche B.
• D)$110 million on Tranche A and $86.8 million on Tranche B.
• E)$108.4 million on Tranche A and $88.4 million on Tranche B.

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Definitions:

Operating Activities

Day-to-day business functions and transactions that affect a company's net income, primarily revenue and expense activities.

Net Income

The amount of money that remains after subtracting all expenses, taxes, and costs from total revenue.

Cash Dividends

Payments made by a corporation to its shareholder members. It is the share of profits distributed.

Bonds Payable

Long-term liabilities representing money a company must pay back to bondholders by a specified maturity date.