BOA originates 100 Fully Amortizing Fixed Rate Mortgages, each has a $1,000 balance, 4% interest rate (no fees), 25-year term, and annual payments. BOA immediately issues IO and PO strips backed by the pool of these mortgages and sells them to investors who discount payoffs at 3%. Hint: use the Prepay.xlsx file on Blackboard, especially the last years HW7 example.

4. What would be the profits if the expected prepayment rate was 10% per year?