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Unformatted text preview: calculated? The after tax yield on the taxable corporate bond is 6.48% or [9%(1-0.28)] and is the comparable rate of a tax-free municipal bond. For any added risk on the muni-bond (e.g., lower marketability), the investor would pay less or require a higher rate of return (i.e., above 6.48%). 4. If a trust is established to securitize $100 million in auto loans that paid 13% interest and the average rate paid on the tranches issued was 10%, whereas financial guarantees to protect against default on the loans cost 1.5%, how much money would the creator of the trust have available to pay for loan servicing and profits if the financial guarantee was purchased? With a revenue rate of 13% and expenses of 11.5% (10% rate plus 1.5% guarantee cost), the annual cash flows available for loan servicing and profits is (0.13 – 0.115) x $100 million = $1.5 million . 2...
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This note was uploaded on 11/08/2011 for the course MAT/FIN 272 taught by Professor Burns during the Spring '11 term at Central Connecticut State University.
- Spring '11