This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: calculated? The after tax yield on the taxable corporate bond is 6.48% or [9%(10.28)] and is the comparable rate of a taxfree municipal bond. For any added risk on the munibond (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...
View Full
Document
 Spring '11
 Burns

Click to edit the document details