longer average life than tranche D in Deal 1. These shorter term average life tranches are more attractive to cash managers than the deal without an accrual tranche.   Floating-Rate Tranches Now lets see how a floating-rate tranche can be created from a fixed- rate tranche. This is done by creating a floater and an inverse floater. We will illustrate the creation of a floater and an inverse floater tranche using the hypothetical CMO structure Deal 2, which is a four tranche sequential-pay structure with an accrual tranche. We can select any of the tranches from which to create a floater tranche and an inverse floater tranche. In fact, we can create these two securities for more than one of the four tranches or for only a portion of one tranche. In this case, we created a floater and an inverse floater from tranche C. The par value for this tranche is $96.5 million, and we create two tranches that have a combined par value of $96.5 million. We refer to this CMO structure with a floater and an inverse floater as Deal 3. It has five tranches, designated A, B, FL, IFL, and Z, where FL is the floating- rate tranche and IFL is the inverse floating-rate tranche. Exhibit 9.6 describes Deal 3. Any reference rate can be used to create a floater and the corresponding inverse floater. The reference rate selected for setting the coupon rate for FL and IFL in Deal 3 is 1-month LIBOR. The princi- pal paydown for the floater and inverse floater is proportionate to the amount of the principal paydown of tranche C.     EXHIBIT 9.6 Deal 3: A Hypothetical Five-Tranche Sequential-Pay Structure with Floater, Inverse Floater, and Accrual Tranches   Tranche Par amount Coupon rate   A $194,500,000 7.50% B 36,000,000 7.50% FL 72,375,000 1-mo. LIBOR + 0.50 IFL 24,125,000 28.50 - 3 ´ (1-mo. LIBOR) Z (Accrual) 73,000,000 7.50%   Total $400,000,000   Payment rules: 1. For payment of periodic coupon interest: Disburse periodic coupon interest to tranches A, B, FL, and IFL on the basis of the amount of principal outstanding at the beginning of the period. For tranche Z, accrue the interest based on the principal plus accrued interest in the previous period. The interest for tranche Z is to be paid to the earlier tranches as a principal paydown. The maximum coupon rate for FL is 10%; the minimum coupon rate for IFL is 0%.