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Mathematics, 17.12.2020 23:50 shamiahG

Wells Fargo issues a CMBS. The mortgage pool consists of interest only loans, with a total loan amount of $15 million. Assume the mortgage rate in the pool is 11%, the mortgages are annually compounded, and the loan maturity is 4 years. There are three tranches in the CMBS: 1. Tranche A, with an amount of $10 million at 8% coupon rate, 2. Tranche B, $3 million at 10% coupon rate, 3. the residual tranche, with $2 million. The maturity of the MBS is 4 years. Suppose some loans are in default, so only 70% of the original loan amount can be recovered at the end of 4th year. However, the mortgage pool can still generate the same amount of cash flow available in year 4 as those in the first 3 years . What is the investor return for Tranche B for the 4 year period?

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Wells Fargo issues a CMBS. The mortgage pool consists of interest only loans, with a total loan amou...
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