1) (15 points) Consider 100 30yr mortgage loans packaged into a pass-through MBS with a 5.5% coupon. Assume there are 4 groups of borrowers, each with 25 identical loans. See below for a description of the different loans: a. What is the size of the MBS (total principal outstanding)? b. What is the simple average loan size of the underlying pool? c. What is the weighted average loan size of the underlying pool? d. What is the weighted average gross coupon (note rate) of the underlying pool? 2) (20 points) Using the same groups of borrowers from question 1, now assume two passthrough MBS are created instead of 1 where borrowers from groups 1 and 2 are allocated to security A and borrowers from groups 3 and 4 are allocated to security B : a. What is the weighted average loan size of security A? b. What is the weighted average loan size of security B? c. Which MBS would you expect to have worse convexity (would have prepayments MORE responsive to changes in interest rates) and why? d. How would you expect the s-curves from these two pools to compare (it is fine to draw them)