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Yuri [45]
3 years ago
9

A collateralized mortgage obligation pays a 2% coupon rate on the first tranche plus any prepayments until its $50 million par v

alue is retired. The second and third tranches receive 4% and 5% coupon rates. The third tranche receives principal only after the second is retired. Which statement is most accurate?
a) Each tranche has the identical level of risk
b) The first tranche has the highest prepayment risk
c) The second tranche has no prepayment risk
d) The third tranche is the least risky
Business
1 answer:
Sloan [31]3 years ago
4 0

Answer:

The correct answer is b) The first tranche has the highest prepayment risk.

Explanation:

A collateralized mortgage obligation (CMO) is a type of security backed by mortgage. It is comprised of a pool of mortgages that are bundled together and sold as an investment. Prepayment risk is the risk of loss of interest income due to early repayment of the principal by the borrower.

In the given situation, there are three tranches. The first tranche has the highest prepayment risk because it is receiving principal at the earliest. Hence, there is more of a chance of this principal being returned early and the CMO holder losing out on potential interest. Therefore, the prepayment risk of the first tranche is the highest among all three tranches.

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The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is planning on paying $3.00, $5.00, $7.50, an
Dimas [21]

Answer:

Market price of share = $26.57

Explanation:

According to the dividend valuation model, the value of a stock is the present value of the expected future dividends from the stock discounted at the the required rate of return.

The required  rate of return here is 15%

The dividend growth model a be applied to each of the years as appropriate.

The share price of Extreme Reaches Corp can be computed as follows:

Year                     working                  Present value of Dividend  

1                          3.00 × (1.15) ×(-1) =        2.61

2                             5× (1.15)^(-2) =           3.78

3                            7.50× (1.15^(-3) =         4.93

4                             10.0×  1.15^(-4) =         5,72

5  to infinity       <em>  (see working)     =           </em><u> 9.52</u>

Present value                                               <u>26.57</u>

Working

Present value of dividend from Year 5 to infinity

PV (in year 4) of dividend from  year 5 to infinity = 2.50× 1/(1.15)= 16.66

Present value in year 0 = PV in year 4× 1.15^(-4)

Present value in year 4 = 16.66× 1.15^(-4) = 9.52

Market price of share = $26.57

4 0
2 years ago
If during the process of negotiating a transaction a real estate licensee discourages a buyer from seeking legal advice on the g
KengaRu [80]

Answer: illegally

Explanation:

One of the requirements in real estate agency regulations is that every listing agreement should have an expiration date.

If during the process of negotiating a transaction a real estate licensee discourages a buyer from seeking legal advice on the grounds that the licensee will look into the problem, that licensee is acting illegally. The licensee has no right to discourage the buyer from seeking legal advice.

8 0
3 years ago
Ezmerelda jewelers has a marginal tax rate of 32 percent and an average tax rate of 20.9 percent. if the firm owes $34,330 in ta
lora16 [44]

Ezmerelda jewelers have a marginal tax rate of 32 percent and an average tax rate of 20.9 percent. if the firm owes $34,330 in taxes,  

$164,258 taxable income.

Taxable income = $34,330 / .209 = $164,258.37

There are two main types of taxes: direct taxes and indirect taxes. Both tax implementations are different. Some are paid directly, such as reduced income tax, corporate income tax, and wealth tax, while others are paid indirectly, such as consumption tax, service tax, and consumption tax.

Ensuring federal, state, and local governments function properly and provide the services they need. Individual governments have specific focuses, and overall spending on things like defense and social security is in the hands of the federal government.

Learn more about  tax here

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3 0
1 year ago
Last year, Natalie submitted her idea for a redesigned bicycle seat on the Fast Flyers Bikes website. She learned this week that
Tems11 [23]

Answer:

microblogging

Explanation:

Natalie has submitted her idea in a website. Her idea was supported by greater number of people. Natalie did not expected that her idea would gain such significance and will be voted as winning.

4 0
2 years ago
Which of the followinThe IS-LM can be viewed as a special case of the AS-AD model where:
CaHeK987 [17]

Answer:

Short run aggregate supply curve is flat ( A )

Explanation:

The special case of the AS-AD following the IS-LM is that the short run aggregate supply curve is flat

This is because in an AS-AD model the price level is constant and AD represents an equilibrium point along IS-LM model,  hence the price been constant, shows that in short run aggregate supply curve will be flat.

7 0
3 years ago
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