Answer-first summary for fast verification
Answer: 2.975 million
## Step-by-Step Calculation ### 2023 Calculation: - **Total Interest Income**: $50 million × 8.1% = $4.05 million - **Senior Tranche Interest**: $32 million × 6.1% = $1.952 million - **Mezzanine Tranche Interest**: $11 million × 9% = $0.99 million - **Total Interest Payments**: $1.952M + $0.99M = $2.942 million - **Excess Interest**: $4.05M - $2.942M = $1.108 million - **OC Inflow (capped)**: min($1.108M, $0.5M) = $0.5 million - **Recovery**: 0 defaults, so $0 - **OC Balance EOY 2023**: $0 + $0.5M = $0.5 million - **Reinvestment**: $0.5M × 5.25% = $0.02625 million ### 2024 Calculation: - **Remaining Pool**: $50M - $3.75M defaults = $46.25 million - **Total Interest Income**: $46.25M × 8.1% = $3.74625 million - **Senior Tranche Interest**: $32M × 6.1% = $1.952 million - **Mezzanine Tranche Interest**: $11M × 9% = $0.99 million - **Total Interest Payments**: $1.952M + $0.99M = $2.942 million - **Excess Interest**: $3.74625M - $2.942M = $0.80425 million - **OC Inflow (capped)**: min($0.80425M, $0.75M) = $0.75 million - **Recovery**: $3.75M × 46% = $1.725 million - **OC Balance EOY 2024**: $0.5M + $0.02625M + $0.75M + $1.725M = $3.00125 million ≈ $3.001 million **Correct Answer: C (3.001 million)**
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In a securitization structure, the Overcollateralization (OC) Account is designed to absorb losses and protect senior tranche investors. Excess interest cash flows (after paying senior and mezzanine tranches) are directed to the OC account, subject to an annual maximum inflow cap. Recoveries from defaulted loans are added to the OC account without being capped at the end of the year. Given:
$32 million, pays SOFR + 85 bps (6.1%).$11 million, pays SOFR + 375 bps (9%).$7 million.$0.5 million.$0.75 million.$0.Calculate the OC Account balance at the end of 2024 assuming it is reinvested at the end of each year with SOFR.
A
1.725 million
B
2.975 million
C
3.001 million
D
3.725 million