Using mortgage pool as collateral

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Consider $5,000,000 of 20-year mortgages with a coupon of 5 percent paid quarterly. Consider a 20-year CMO using this mortgage pool as collateral. There are three tranches (where A offers the least protection against prepayment and C offers the most). A $1,250,000 tranche A makes quarterly payments of 4 percent; a $2,500,000 tranche B makes quarterly payments of 5 percent; and a $1,250,000 tranche C makes quarterly payments of 6 percent. If the trustee receives quarterly prepayments of $200,000 on the mortgage pool, which of the following is NOT true?

Reference no: EM131586319

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