The coupon rate promised to investors on securities issued against a pool of loans is 6.5%....
The coupon rate promised to investors on securities issued against a pool of loans is 6.5%. The default rate on the pool of loans is expected to be 3.5%. The fee to compensate a servicing institution for collecting payments on the loan is 2%. Fees to set up credit and liquidity enhancements are 5%. The residual income on this pool of loans is 7%. What is the expected yield on this pool of loans?
The Answer: 24%. How did we end up with this number? (Show all steps)
Homework Answers
Add Answer to:
The coupon rate promised to investors on securities issued
against a pool of loans is 6.5%....
$200 mils of MBBs will be issued against a $300 mils pool of mortgages, in denominations...
$200 mils of MBBs will be issued against a $300 mils pool of mortgages, in denominations of $10,000 per share for a period of 10 years. The bonds will carry a coupon @8%, payable annually. The bonds are rated of Aaa or AAA. The market rate of return demanded by investors (who purchase MBBs from underwriters) is 10% per annual. Which of the following statement is TRUE? The market price of the MBB on the date of issuance is $9,358...
(a) Assume that a $200m Mortgage Backed Bond (MBB) is issued against a $300m pool, in...
(a) Assume that a $200m Mortgage Backed Bond (MBB) is issued against a $300m pool, in denominations of $10,000 for a period of 10 years. The coupon rate was set at 8.00% pa. Also assume that the MBB is given a rating of AAA and that the market rate of return required by investors is 9%pa Calculate the price at which the security will be offered on the date of issue (20%) Discuss the market developments where mortgage backed securities...
11) Which of the following typically has the lowest yield? A) 5-year AAA corporate bond B)...
11) Which of the following typically has the lowest yield? A) 5-year AAA corporate bond B) 2-year U.S. Treasury note C) Fed Funds D) 3-month U.S. Treasury bill 12) Debt instruments are also called: A) adjustable notes B) credit instruments C) perpetual securities D) interest rate swaps 13) Which of the following characteristic is NOT fixed on a coupon bond? A) Current yield B) Coupon rate C) Maturity D) Par amount 14) If you purchased a U.S. Treasury at a...
Investors generally finance their investment opportunities (assets) with a combination of loans (debt) and equity shareholders....
Investors generally finance their investment opportunities (assets) with a combination of loans (debt) and equity shareholders. Suppose owner Alex, as a CEO, purchases an asset (e.g., property real estate) expected to go up in value. Instead of paying full price, Alex finances the asset with a loan from Carter Bank and with cash from two college friends, Sam and Chris. Sam wants to invest without having to worry about daily operations and is happy to be a preferred shareholder (PS)...
True/False (1 Point each) 1) When bond prices decrease, their yields to maturity increase. 2) The...
True/False (1 Point each) 1) When bond prices decrease, their yields to maturity increase. 2) The best forms of money and financial systems enjoy the benefits of trust, belief, and stability. 3) A fundamental function of a commercial bank is to take in deposits and make loans. 4) Traditional banks operate with low margins and high leverage. 5) Rates on bonds issued by a government can be negative. 6) ) The default risk premium is the same as the credit...
Billy Thornton borrowed $20,000 at a rate of 7.25%, simple interest, with interest paid at the...
Billy Thornton borrowed $20,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses a 360-day year. How much interest would Billy have to pay in a 30-day month? a. $139.88 b. $133.22 c. $120.83 d. $126.88 e. $146.87 1 points QUESTION 9 Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years. How...
1) Discuss the company's top risks? 2) Discuss whether the company treats risk reactively or proactively?...
1) Discuss the company's top risks? 2) Discuss whether the company treats risk reactively or proactively? 3) Do you observe a lack of understanding of potential exposures? 4) Does the company focus on internal risks or external risks? 5) Do you think the company is well prepared to respond to potential risks? Orange County he t die Following the debocie Orange County o dmorych of control procedures and financial gove nonce and d e setof o n policies December 1994...
1. When it comes to financial matters, the views of Aristotle can be stated as:...
1. When it comes to financial matters, the views of Aristotle can be stated as: a. usury is nature’s way of helping each other. b. the fact that money is barren makes it the ideal medium of exchange. c. charging interest is immoral because money is not productive. d. when you lend money, it grows more money. e. interest is too high if it can’t be paid back. 2. Since 2008, when the monetary base was about $800 billion,...
Caterpillar Inc. 2017 2016 5 S 51,822 2,900 54,722 42,676 2,786 45,462 35,773 2,764 38,537 STATEMENT...
Caterpillar Inc. 2017 2016 5 S 51,822 2,900 54,722 42,676 2,786 45,462 35,773 2,764 38,537 STATEMENT 1 Consolidated Results of Operations for the Years Ended December 31 Dollar is willions cat pershare dal Sales and revenues Sales of Machinery, Energy & Transportation Revenues of Financial Products Total sales and revenues Operating costs Cost of goods sold Selling, general and administrative expenses Research and development expenses Interest expense of Financial Products Goodwill impairment charge Other operating incomel expenses Total operating costs...
Case: Enron: Questionable Accounting Leads to CollapseIntroductionOnce upon a time, there was a gleaming...
Case: Enron: Questionable Accounting Leads to CollapseIntroductionOnce upon a time, there was a gleaming office tower in Houston, Texas. In front of that gleaming tower was a giant “E,” slowly revolving, flashing in the hot Texas sun. But in 2001, the Enron Corporation, which once ranked among the top Fortune 500 companies, would collapse under a mountain of debt that had been concealed through a complex scheme of off-balance-sheet partnerships. Forced to declare bankruptcy, the energy firm laid off 4,000...
(a) Assume that a $200m Mortgage Backed Bond (MBB) is issued against a $300m pool, in denominations of $10,000 for a period of 10 years. The coupon rate was set at 8.00% pa. Also assume that the MBB is given a rating of AAA and that the market rate of return required by investors is 9%pa Calculate the price at which the security will be offered on the date of issue (20%) Discuss the market developments where mortgage backed securities...
11) Which of the following typically has the lowest yield? A) 5-year AAA corporate bond B) 2-year U.S. Treasury note C) Fed Funds D) 3-month U.S. Treasury bill 12) Debt instruments are also called: A) adjustable notes B) credit instruments C) perpetual securities D) interest rate swaps 13) Which of the following characteristic is NOT fixed on a coupon bond? A) Current yield B) Coupon rate C) Maturity D) Par amount 14) If you purchased a U.S. Treasury at a...
1) Discuss the company's top risks? 2) Discuss whether the company treats risk reactively or proactively? 3) Do you observe a lack of understanding of potential exposures? 4) Does the company focus on internal risks or external risks? 5) Do you think the company is well prepared to respond to potential risks? Orange County he t die Following the debocie Orange County o dmorych of control procedures and financial gove nonce and d e setof o n policies December 1994...
Caterpillar Inc. 2017 2016 5 S 51,822 2,900 54,722 42,676 2,786 45,462 35,773 2,764 38,537 STATEMENT 1 Consolidated Results of Operations for the Years Ended December 31 Dollar is willions cat pershare dal Sales and revenues Sales of Machinery, Energy & Transportation Revenues of Financial Products Total sales and revenues Operating costs Cost of goods sold Selling, general and administrative expenses Research and development expenses Interest expense of Financial Products Goodwill impairment charge Other operating incomel expenses Total operating costs...
Most questions answered within 3 hours.
-
You are going to sell fruits & vegetables at a local
roadside market. List separately and...
asked 8 minutes ago -
Hows does water affect the digestion of fats ?
asked 2 hours ago -
A buffer that contains 0.41 M of a base, B and 0.21 M of its
conjugate...
asked 2 hours ago -
Pleaaaaaaaasssssse help me please please it's more important
:((((((((((((((((((((
CASE STUDY
Nissan Company
Nissan Motor Company,...
asked 2 hours ago -
Calculate the concentration of hydronium and hyroxide ions in 1)
2.0 mol/L HNO3 2) 0.5 mol/L...
asked 2 hours ago -
In a loop-the-loop ride a car goes around a vertical, circular
loop at a constant speed....
asked 2 hours ago -
50 grams each of water (18.015 g/mol) and ethylene glycol
(C2H6O2) (62.07 g/mol) are mixed. At...
asked 2 hours ago -
The life expectancy of sport utility vehicles follows a normal
distribution with a mean of 145.8...
asked 3 hours ago -
If an object with mass of 5 kg is pushed with a force of 552 N,...
asked 2 hours ago -
Suppose your program already has a list called nums, which
contains several numbers. Write a for...
asked 3 hours ago -
A spherical shell with a finite thickness just barely floats in
water. If the shell is...
asked 3 hours ago -
Explain in detail whether the following is true or false:
Total factor productivity will rise only...
asked 3 hours ago