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…

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 tranche

1. 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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