The Following Information Is for a Collateralized Mortgage Obligation (CMO)

Multiple Choice

The following information is for a collateralized mortgage obligation (CMO) .Tranche A has a face value of $110 million and pays 5 percent annually.Tranche B has a face value of $90 million and pays 7 percent annually.

What are the annual coupon payments promised to each tranche? (Assume no prepayments and non-amortization of principal. )

A) $5.5 million on Tranche A and $6.3 million on Tranche B.
B) $5.5 million on Tranche B and $6.3 million on Tranche A.
C) A total of $12 million on both Tranche A and B.
D) $4.5 million on Tranche A and $7.7 million on Tranche B.
E) $4.5 million on Tranche B and $7.7 million on Tranche A.