Wells Fargo issues a C. The mortgage poolconsists of interest only loans, with a totalloan amount of $15 million.
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Wells Fargo issues a C.M.B.S. The mortgage pool consists of interest only loans, with a total loan amount of $15

million. Assume the mortgage rate in the pool is 11%, the mortgages are annually compounded, and the loan maturity is 4 years. There are three tranches in the C.M.B.S.: 1. Tranche A, with an amount of $10 million at 8% coupon rate, 2. Tranche B, $3 million at 10% coupon rate, 3. the residual tranche, with $2 million. The maturity of the M.B.S. is 4 years. Suppose some loans are in default, so only 70% of the original loan amount can be recovered at the end of 4th year. However, the mortgage pool can still generate the same amount of cash flow available in year 4 as those in the first 3 years . What is the investor return for Tranche B for the 4 year period?


Group of answer choices



a. -8.77%


b. -8.47%


c. -7.11%


d. -5.98%

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