3. Consider a mortgage pass-through collateralized by a pool of fixed-rate level-payment mortgages with the following characteristics: (30 points) Weighted average maturity (WAM): 348 months Mortgage Pool: $375 million Weighted average coupon (WAC): 7.50% Pass-through (PT) rate: 6.25% Assume the prepayment speed is at 885 PSA. a. For the first month, compute (1) the monthly mortgage payment from the pool, (2) interest payment to the PT holder, (3) scheduled principal to the PT holder, and (4) prepayment of principal to the PT holder b. Repeat part (a) for the second month. C. Calculate the average life of this mortgage pass-through security. Find the prepayment risk for this pass-through. The prepayment risk measure is defined to be (AAverage Life)/(APSA). (Hint: Use the current PSA as the basis and change the PSA up and down by one to see the change in average life.) e. What is contraction risk? What is extension risk? f. What type of investors would be most concerned about contraction risk (want to minimize this risk)? Provide an example. What type of investor would be most concerned about extension risk (want to minimize this risk)? Provide an example. 3. Consider a mortgage pass-through collateralized by a pool of fixed-rate level-payment mortgages with the following characteristics: (30 points) Weighted average maturity (WAM): 348 months Mortgage Pool: $375 million Weighted average coupon (WAC): 7.50% Pass-through (PT) rate: 6.25% Assume the prepayment speed is at 885 PSA. a. For the first month, compute (1) the monthly mortgage payment from the pool, (2) interest payment to the PT holder, (3) scheduled principal to the PT holder, and (4) prepayment of principal to the PT holder b. Repeat part (a) for the second month. C. Calculate the average life of this mortgage pass-through security. Find the prepayment risk for this pass-through. The prepayment risk measure is defined to be (AAverage Life)/(APSA). (Hint: Use the current PSA as the basis and change the PSA up and down by one to see the change in average life.) e. What is contraction risk? What is extension risk? f. What type of investors would be most concerned about contraction risk (want to minimize this risk)? Provide an example. What type of investor would be most concerned about extension risk (want to minimize this risk)? Provide an example