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:

Acquirer

A company or individual that purchases another company or its significant assets.

Stockholders

Individuals or entities that own shares in a corporation, giving them partial ownership and possibly voting rights.

Horizontal Merger

A business consolidation that occurs between firms who operate in the same industry, often aimed at creating a more competitive entity with higher market share.

Conglomerate Merger

A merger between companies that operate in entirely different industries.