Question

Given the following information about a CMO: - $1 million of mortgage pool principal assigned to the floater class. $15 million assigned to the inverse floater class. - Floater class coupon rule: LIBOR + 0.2% - Inverse floater class coupon rule: 12.5% - L x LIBOR - LIBOR in the first month is 3% What is the coupon leverage L? Round your answer to two decimal points (e.g. if your answer is 1/3, write 0.33).

Answer 1

The answer is "0.07"

Step-by-step explanation:

L or the voucher Leverage has been the mortgage pool proportion of such class to the loan pool assigned to the reverse float class. Leverage

Mortage Main swimming pool = 1 million Floaters

The principal reverse float class mortgage pool = 15 million

Voucher Leverage or L = Floater category mortgage pool / Inverse Hook shot class mortgage pool As tried to explain before,

Cupon Leverage or L
`= (1\ million)/( 15 \ million)= 0.066667`

therefore, the coupon leverage or L = 0.07.