A group of pooled loans used is expected to yield a return of 23%. The coupon ra

Question

A group of pooled loans used is expected to yield a return of 23%. The coupon rate promised to investors on securities issued against the pool of loans is 8%. The default rate on the pooled loans is expected to be 4.5%. The fee to compensate a servicing institution for collecting payments on the loans is 2%. Fees to set up credit and liquidity enhancements are 3%. The fee for providing advising how to set up the pool of securitized loans is 1%. What is the residual income on this pool of loans? A) 18.5% B) 9% C) 4.5% D) 2% E) None of the above Please work problem out

Explanation / Answer

Answer - 4.5%

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