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Question
A three-class (Class A, B, and C) sequential pay CMO starts with an $80 million principle amount in each class. The mortgages in the pool have a 7% interest rate. The CMO classes receive monthly payments. During the first month $1 million in interest is received from mortgage holders and $1.5 million in principle. What principle amounts are outstanding for each class during the second month? How will this affect the total payment each class receives? Explain.
Answer
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