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    Amount Available to Buy Financial Guarantee

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    If a trust is established to securitize $100 million in auto loans that paid 13 percent interest and the average rate paid on the tranches issued was 10 percent, whereas financial guarantees to protect against default on the loans cost 1.5 percent, how much money would the creator of the trust have available to pay for loan servicing and profits if the financial guarantee was purchased?

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    Solution Preview

    Interest rate received on auto loans .130
    Interest rate paid on tranches .10
    Fees paid for ...

    Solution Summary

    This solution illustrates how to compute the amount of funds available for loan servicing and profits if a financial guarantee is bought.