Question
Assume FRM 30 yr. = 5%. Consider the following 2 MBS MBS 1 Coupon = 5.25% MBS 2 Coupon = 4.25% Pool average coupon =
Assume FRM 30 yr. = 5%. Consider the following 2 MBS
| MBS 1 Coupon = 5.25% | MBS 2 Coupon = 4.25% |
| Pool average coupon = 6.5% | Pool average coupon = 4.5% |
| Threshold = 100 BPs |
|
Which MBS is a premium and which is a discount. Explain.
Determine relative prepayment speed for both MBS1 and MBS2
Assume the FRM falls by 100BPS. What is the effect on prepayment speed for both MBS securities? Explain.
Explain how negative convexity is evident as a result of #3 above.
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Real Estate Finance
Authors: Wolfgang Breuer, Claudia Nadler
2012th Edition
3834934496, 978-3834934499
