Known: Consider a $400 million pass-through MBS that has just been created (so the 'seasoning' of the pass-through is equal to 0). The underlying pool of mortgages each has a maturity of 20 years (term of loan is 240) and an annual mortgage coupon rate of 6%. The pass-through rate of the mortgage pool is 5%. Suppose we construct principal-only (PO) and interest-only (IO) mortgage-backed securities (MBS) using the mortgage pass-through. Assume a prepayment multiplier of 100 PSA. What is the present value of the PO MBS if we use an annual risk-free rate of 4.5% to value the cash-flows

What I have already calculated: Initial Monthly Payment: 2.866 (m). Below all as million.

Total Valo with discount: 439.97

Total monthly payment with discount: 304.2582

Total principle Payment: 280.10

Total interest paid be mortgage holders: 159.8733

Total Interest paid out to pass through investor: 133.2278

Total Prepay: 135.7101

As you can see: total principle + interest paid = monthly pay + prepay.

Q: what is the average life of the IO MBS, I had 5.175, but is wrong. I can send you the excel, please leave an address.