Calculate the percentage amount of residual income

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Question: Suppose that a bank securitizes a package of its loans that bear a gross annual interest yield of 13 percent. The securities issued against the loan package promise interested investors an annualized yield of 8.25 percent. The expected default rate on the packaged loans is 3.5 percent. The bank agrees to pay an annual fee of 0.35 percent to a security dealer to cover the cost of underwriting and advisory services and a fee of 0.25 percent to Arunson. Mortgage Servicing Corporation to process the expected payments generated by the packaged loans. If the above items represent all the costs associated with this securitization can you calculate the percentage amount of residual income the bank expects to earn from this particular transaction?

Reference no: EM131717706

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