Assume that the defaults/losses will occur in exactly twelve months, with no other defaults in the pool. The other 59% of the loan pool will prepay in full, also in twelve months. Assume, too, the mortgage bonds receive interest monthly at the rate given and that scheduled and additional unscheduled principal payments remain at the September 2008 level. What is the internal rate of return (IRR) to an investor who buys Bond M2? Bond M6?

interest monthly rate:

M2: 3.35

M6: 5.15

Prices:

M2: 81.09041

M6: 8.74618

Source: betting on failure: profiting from defaults on subprime mortgages (kellogg)