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

question 32

Multiple Choice

The following information is for a collateralized mortgage obligation (CMO) .Tranche A has a face value of $50 million and pays 6 percent annually.Tranche B has a face value of $50 million and pays 8 percent annually.All mortgages have maturities of 30 years. If at the end of the first year, the trustee of the CMO receives total cash flows of $10 million, how are they distributed to Tranche A and B, respectively?

• A)$5,558,628; $4,441,372.
• B)$4,441,372; $5,558,868.
• C)$4,000,000; $6,000,000.
• D)$6,000,000; $4,000,000.
• E)$5,558,628; $4,000,000.

Understand and identify the concepts of diminishing marginal returns and marginal cost.

Differentiate between short-run and long-run cost structures and their implications for firm decision-making.

Recognize the relevance and implications of sunk costs and the sunk cost fallacy in economic decision-making.

Interpret diagrams related to cost curves, including total costs, average costs, and marginal costs.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of goods sold by a company, including the cost of materials and labor.

Production Levels

The quantity of goods or services produced within a specified period, often measured in units, volume, or output.

Per Unit Cost

The average cost associated with producing or acquiring one unit of a product or service.

Variable Expenses

Costs that change in proportion to the activity of a business.