1. (a) Compute the cash flow yield and the bond equivalent yield based on information of a hypothetical mortgage backed security. It is known the price of the MBS is $4,000,000.

Month	Cash Flow to Investor
1	550000
2	550000
3	550000
4	550000
5	550000
6	540000
7	540000
8	540000
9	540000
10	540000
11	500000
12	500000

Answer: Cash Flow Yield = 8.37% and Bond Equivalent Yield = 123.95%

(b) With above information, will you be able to calculate the average life of the mortgage? Can you calculate the duration? Answer: You cannot calculate the average life of the mortgage but you can calculate the duration.

(c) Suppose principal payments account for 50% of the cash flow in each month, what is the average life of the mortgage? Answer: Average life = .533 years

Please show the work on how to get the answers to parts A and C!