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

question 53

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 are the annual coupon payments promised to each tranche? (Assume no prepayments and non-amortization of principal. )

• A) $5.5 million on Tranche A and $6.3 million on Tranche B.
• B) $5.5 million on Tranche B and $6.3 million on Tranche A.
• C) A total of $12 million on both Tranche A and B.
• D) $4.5 million on Tranche A and $7.7 million on Tranche B.
• E) $4.5 million on Tranche B and $7.7 million on Tranche A.

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Definitions:

National-Average Poverty Rates

The proportion of the population that lives below the poverty line, averaged across a nation, indicating the level of economic hardship and inequality.

Hispanics

A demographic group in the United States and other countries, often characterized by a heritage, language, or culture related to Spain or Spanish-speaking Latin American countries.

Foreign-Born Noncitizens

Foreign-born noncitizens are individuals born outside of a given country who have not acquired citizenship by naturalization within that country.

Income Inequality

The uneven distribution of income within a population, where some individuals earn significantly more than others.