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Amortize both loans at 100 PSA (leave open to change). This is the base assumption. Note that we can consider these to be default free

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Amortize both loans at 100 PSA (leave open to change). This is the base assumption. Note that we can consider these to be default free as they are agency pools. 2. Create a WAC IO and PO tranche to create a 5.75% deal coupon. 4. With the remaining assets, create a sequential pay structure of two classes, with initial principal A1:A2::3:1. 5. Assume all classes were bought under the base PSA assumption for: A-1: 103:01; A-2: 98:20; IO: 0:20 (notional); PO: 81:31. The notation :nn means nn/32nds. 6. Assume a Treasury term structure given by z(T) = 0.03 ln[0.038 (T+40)] where T is measured in months. 7. Make reasonable assumptions for any missing information and justify them. Take care that you may only think the information to be missing.

\begin{tabular}{|l|l|l|} \hline & PT 1 & PT 2 \\ \hline Initial Principal Balance (million \$) & 12.791 & 76.734 \\ \hline Gross Mortgage Rate (\%) & 5.58375 & 6.16051 \\ \hline Net Mortgage Rate (\%) & 5.34479 & 5.94576 \\ \hline Original Term (months) & 360 & 360 \\ \hline Remaining Term (months) & 353 & 356 \\ \hline Loan Age (months) & 6 & 3 \\ \hline \end{tabular}

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