Project #50141 - Finance-Derivative

Glide2japan  HWSET:HW7  Class:F434    Regular Problems

 

   Imagine a mortgage pool that consists of 100 $1,100 mortgages.

(No, this is not 1910.  It is just that $110,000 worth of mortgages is an

easier number to work with than $110,000,000).  The mortgages pay an

average of 7.20%, compounded monthly.  Imagine that Collateralized

Mortgage Obligations (CMOs) consisting of four tranches are issued on this

mortgage pool.  Assume initially that the principal owed for each tranche is

$27,500.  The first obligation is to pay the interest on tranches A,

B, and C.  tranche A will receive an interest rate of 6.48%, tranche B

will receive an interest rate of 6.60%, and tranche C will receive an

interest rate of 6.72%.  A forth tranche Z will earn accrued interest of

7.92%, but will receive none of this interest until the principal for

all the other tranches are paid off in full.

 

   If the total payments for a month exceeds the total accrued interest

owed to tranches A, B, and C, then the principal on tranche A will be paid

down.  Only if the principal owed to tranche A is completely paid off, will

any extra payments for the month be used to pay off principal owed to

tranche B.  Only if the principal owed to tranches A and B are completely

paid off, will any extra payments for the money be used to pay off

principal owed to tranche C.  Finally, only if the principal owed to

tranches A, B, and C are completely paid off, will tranche Z receiving anything.

 

   The payments for the mortgage pool are as shown below for the first six months:

 

Month 1: $    9,900

Month 2: $   13,200

Month 3: $   16,500

Month 4: $   23,100

Month 5: $   27,500

Month 6: $    8,800

 

   Please determine the total monthly payments for each tranche and put the

answers in the table below:

         

         I will attach word table once I assign you to do my work.

 

 

 

 

Subject Business
Due By (Pacific Time) 12/03/2014 06:00 pm
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