On page 264-5, there is an example problem. There are 3 tranches here: Senior, Mezzanine, and Subordinate/Equity. In the calculations for the interest rate distribution to the tranches, they calculate the interest to be paid to the Senior and Mezzanine tranches, but not for the Subordinate/Equity tranches. I totally understand how to calculate the interest payments based on the interest rates and the rates from the derivative agreements. What is the interest that should be paid to this subordinate/equity tranche?
Never mind. I’ve found the answer. It was on page 265 at paragraph which begins: “Since 70 bp times $80 million …”.