Suppose you have the following information for an auto loan ABS. Using the information in the bulleted list below, find a. The weighted average life for the pool, Tranche A and Tranche B b. Using a B rate =5%, what is the value of the excess servicing?• Total loan pool = $2,000,000• Term = 4 years• (Weighted average) Loan rate = 3.5%; market yield =3.5%• Servicing cost =1.50% • PD=20%; LGD=40%; $40,000 buffer over expected loss for B tranche1. You need to determine the size of Tranche B (Hint: PDxLGDx Loan pool + buffer)2. Tranche A = Total Loan Pool – Tranche B • A tranche rate =1.00%
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