Question
BOA originates 100 Fully Amortizing Fixed Rate Mortgages, each has a $1,000 balance, 5% interest rate (no fees), 25-year term, and annual payments. BOA immediately
BOA originates 100 Fully Amortizing Fixed Rate Mortgages, each has a $1,000 balance, 5% 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 4%. Hint: use the Prepay.xlsx file on Blackboard, especially the last years HW7 example.
9. What would be the value of all PO strips if the expected prepayment rate was 15% per year?
10. What would be the value of all IO strips if the expected prepayment rate was 15% per year?
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Case Studies In Finance
Authors: Robert Bruner, Kenneth Eades, Michael Schill
6th Edition
0073382450, 978-0073382456
