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A newly issued mortgage pass-through security (MPT) consists of the following three loans: a $400,000 loan for 40 years at 3.7% APR a $200,000 loan
A newly issued mortgage pass-through security (MPT) consists of the following three loans:
a $400,000 loan for 40 years at 3.7% APR
a $200,000 loan for 20 years at 3.7% APR
a $200,000 loan for 20 years at 4.6% APR
This pool of mortgages is managed by a trustee who extracts a service fee of .6% of the cash flows.
(a) What is the weighted average maturity for this MPT?
(b) By investing in this MPT, what precisely would an investor be purchasing?
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