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

question 55

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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