1.You buy a mortgage pass through security with a 7.5% coupon rate and a 5.5% discount rate. The price at the time of purchase reflects a 5% annual prepayment rate. One hour after your purchase, the expected annual prepayment rate rises to 10%. The value of your mortgage pass through security should ?

2.You buy a Principal Only Strip. The price at the time of purchase reflects a 12% expected annual prepayment rate. One hour after your purchase, you learn that it is actually not prepayment but default rate, and that only 80% of the defaulted balance can be recovered. The value of your security should?

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