David M. Harrison, Ph.D.

1
Valuing Collateralized Mortgage Obligations

• Given the following information about a pool of
  fixed-rate mortgages
• Amount 106 million
• Coupon Rate 10.5
• Maturity 30 years
• PSA 100
• Year 1- 1.3 Year 2 3.7 Year 3,
  5.75 Year 4 6.0
• Tranche Data
• Tranche A 9.50 coupon 30,000,000 value
• Tranche B 9.75 coupon 30,000,000 value
• Tranche C 10.25 coupon 25,000,000 value
• Tranche Z 10.50 coupon 15,000,000 value
• Equity Residual cashflow 6,000,000 value
• For the first 5 years, show
• The end-of-year balance for the pool and each
  tranche
• Scheduled principal and interest payments for the
  pool and each tranche
• Total cash flows for each set of claimants

2
Pool Level Cash Flows of CMOs
Yr Beg. Pool Bal. Beg. Debt Bal. PI Prin Int Pre-pays Def. Total CF End. Pool Bal. End. DebtBal.
1
2
3
4
5
3
Tranche A Cash Flows
Yr Beginning Balance Coupon Principal Interest Ending Balance
1
2
3
4
5
4
Tranche B Cash Flows
Yr Beginning Balance Coupon Principal Interest Ending Balance
1
2
3
4
5
5
Tranche C Cash Flows
Yr Beginning Balance Coupon Principal Interest Ending Balance
1
2
3
4
5
6
Tranche Z Cash Flows
Yr Beginning Balance Deferred Interest Total Deferred Interest Ending Balance
1
2
3
4
5
7
Cash Flows Accruing to Equityholders
Yr Equity Cashflows
0
1
2
3
4
5