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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.
If at the end of the first year, the CMO trustee receives total cash flows of $15 million, how are they distributed?
A. $7.5 million to Tranche A and $7.5 million to Tranche B.
B. $15 million to Tranche A and nothing to Tranche B.
C. $5.5 million to Tranche A and $9.5 million to Tranche B.
D. $8.7 million to Tranche A and $6.3 million to Tranche B.
E. $7.1 million to Tranche A and $7.9 million to Tranche B.
Answer
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