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Question
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.
Answer
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