3. A $10 million 30-year 3% coupon FNMA MBS pool is priced at a 2.5% yield for settlement on June 16.

a) What is the accrued interest

b) What is the price of the pool, accounting for the delay (24 days), if the present value of the cash flows,discounted at 2.5% yield, is $10,272,729.60

4. Consider two CMO structures using the same $1 billion balance of MBS pools: Structure 1: $665 million PAC class, $335 million companion class Structure 2: $734 million PAC class, $266 million companion class

a) Which structure offers the most prepayment protection to the PAC class?

b) The option cost for the PAC class of which structure will be higher?