1. (Mortgage Pass-Throughs) Consider a $400 million pass-through MBS that has just been created (so the seasoning of the pass-through is equal to 0). The underlying pool of mortgages each has a maturity of 20 years and an annual mortgage coupon rate of 6%. The pass-through rate of the mortgage pool is 5%. Assuming a prepayment multiplier of 100 PSA what is total amount of interest paid to the pass-through investors?

2. (Principal-Only MBS and Interest-Only MBS) Suppose we construct principal-only (PO) and interest-only (IO) mortgage-backed securities (MBS) using the mortgage pass-through of the previous questions. Assume a prepayment multiplier of 100 PSA. What is the present value of the PO MBS if we use an annual risk-free of 4.5% to value the cash-flows.

3.(Principal-Only MBS and Interest-Only MBS) Referring to the previous question, what is the value of the IO MBS?