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5. Lemon Brothers just structured a $1 billion CMO with $732 million allocated to the PAC class. The deal is off FNMA 30-year 3% coupon MBS. The structurer determines the best execution of the companion class collateral is to create a floater, an inverse 10 and a super PO. In orer to sell the floater at a 35 bp DM (discount margin) off 1-month LIBOR, the floater must have a 5% cap. a) What balance amount is allocated to the companion class? b) In order the create a 5% cap on the floater how much principal is allocated to the floater and how much is allocated to the super PO? c) What is the cap on the inverse IO? d) What is the coupon formula for the inverse 10? e) Suppose LIBOR is 1.7%, what are the floater and inverse 10 coupon? 1 5. Lemon Brothers just structured a $1 billion CMO with $732 million allocated to the PAC class. The deal is off FNMA 30-year 3% coupon MBS. The structurer determines the best execution of the companion class collateral is to create a floater, an inverse 10 and a super PO. In orer to sell the floater at a 35 bp DM (discount margin) off 1-month LIBOR, the floater must have a 5% cap. a) What balance amount is allocated to the companion class? b) In order the create a 5% cap on the floater how much principal is allocated to the floater and how much is allocated to the super PO? c) What is the cap on the inverse IO? d) What is the coupon formula for the inverse 10? e) Suppose LIBOR is 1.7%, what are the floater and inverse 10 coupon? 1

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