A F/IF security is created with $20,000,000 in principal and a WAC of 7%. 40% of the principal is allocated to the floater class and the remainder is allocated to the inverse floater class. The floater class will receive LIBOR+50bp
A. What interest rate will be paid to the inverse floater class when LIBOR is at 4%?
B. What is the cash flow to the floater class when LIBOR is at 12%?
C. What is the maximum cap rate payable to the floater class?
D. If instead the principal was allocated 50/50 amongst the floater/inverse floater classes, would the max cap to the floater class increase, decrease, or remain the same?