1) North Bank awards thirty-year mortgages for the total amount of $100 million. These mortgages need payments of coupons of 10% at quarterly basis. Reply the following questions:
a) What is the quarterly mortgage payment?
b) Create the amortization schedule over 1st year of life of mortgage to find out how much of each payment goes to principle and how much to interest Consider now 30-year Collateralized Mortgage Obligations (CMOs) by using this mortgage pool as collateral. There are 3 tranches with following characteristics:
Class A: Quarterly fixed coupon 9%, class size $20 million.
Class B: Quarterly fixed coupon 10%, class size $30 million.
Class C: Quarterly fixed coupon 11%, class size $50 million
c) Suppose that there are not at any time any type of repayments (e.g. premature payments of the mortgages), what are total promised coupon payments to three classes? Write down the principal payments to each of three classes for the 1st year?
d) If, over first year, there are quarterly repayments of $5 million on mortgage pool, how are the funds distributed?