MPTS Excel Assignment The Blue Algae Mortgage Company has originated a pool containing 75 ten-year fixed rate mortgages with an average balance of $100,000 each with 1% origination fee. The annual interest rate on all loans in the pool is 12% and all loans require monthly payments. Initial Pool Balance Annual Interest Rate Maturity (years) Payments per year Question 1: What price should Blue Algae obtain if the pool is sold immediately to an investor with a required annual return of 11% and no prepayment is expected? Payments from Borrowers Prepaid Principal Principal Service Fee Cash Flow to Investor Interest Pool Balance Month 0 1 2 Required Return Price 3 4 5 6 7 8 Question 2: What price should Blue Algae obtain if the pool is sold immediately to an investor with a required annual return of 11% and the monthly prepayment rate is 0.1%? Payments from Borrowers Prepaid Principal Principal Service Fec Cash Flow to Investor Interest Pool Balance Month 0 1 Required Return Price Question 3: What price should Blue Algae obtain if the pool is carved into MPTS and the investors require a 9% annual return after a monthy service fee of 0.1% is deducted (with no prepayment)? Payments from Borrowers Prepaid Principal Principal Service Fee Cash Flow to Investors Interest Pool Balance Month 0 1 2 3 Required Return Price 6 Question 4: What price should Blue Algae obtain if the pool is carved into MPTS and the investors require a 9% annual return after a monthy service fee of 0.1% is deducted and the monthly prepayment rate is 0.1%? 3 Payments from Borrowers Prepaid Principal Principal Service Fee Cash Flow to Investors Month Interest Pool Balance 0 1 2 Required Return Price 1 2 Question 5: Suppose 5 years have passed since the MPTS in Question 4 was originated and the prepayment expectation was correct and will continue to be correct for the next 5 years. What is the value of the pool if investors today require a return of 6% annual return after a monthy service fee of 0.1% is deducted and the monthly prepayment rate is 0.1%? Required Return Price 2 Question 6: What is Blue Green Algae's net profit in Question 1 above if the originator's operating expenses total $150,000? Cash from investor Cash to borrowers Operating expenses Net profit MPTS Excel Assignment The Blue Algae Mortgage Company has originated a pool containing 75 ten-year fixed rate mortgages with an average balance of $100,000 each with 1% origination fee. The annual interest rate on all loans in the pool is 12% and all loans require monthly payments. Initial Pool Balance Annual Interest Rate Maturity (years) Payments per year Question 1: What price should Blue Algae obtain if the pool is sold immediately to an investor with a required annual return of 11% and no prepayment is expected? Payments from Borrowers Prepaid Principal Principal Service Fee Cash Flow to Investor Interest Pool Balance Month 0 1 2 Required Return Price 3 4 5 6 7 8 Question 2: What price should Blue Algae obtain if the pool is sold immediately to an investor with a required annual return of 11% and the monthly prepayment rate is 0.1%? Payments from Borrowers Prepaid Principal Principal Service Fec Cash Flow to Investor Interest Pool Balance Month 0 1 Required Return Price Question 3: What price should Blue Algae obtain if the pool is carved into MPTS and the investors require a 9% annual return after a monthy service fee of 0.1% is deducted (with no prepayment)? Payments from Borrowers Prepaid Principal Principal Service Fee Cash Flow to Investors Interest Pool Balance Month 0 1 2 3 Required Return Price 6 Question 4: What price should Blue Algae obtain if the pool is carved into MPTS and the investors require a 9% annual return after a monthy service fee of 0.1% is deducted and the monthly prepayment rate is 0.1%? 3 Payments from Borrowers Prepaid Principal Principal Service Fee Cash Flow to Investors Month Interest Pool Balance 0 1 2 Required Return Price 1 2 Question 5: Suppose 5 years have passed since the MPTS in Question 4 was originated and the prepayment expectation was correct and will continue to be correct for the next 5 years. What is the value of the pool if investors today require a return of 6% annual return after a monthy service fee of 0.1% is deducted and the monthly prepayment rate is 0.1%? Required Return Price 2 Question 6: What is Blue Green Algae's net profit in Question 1 above if the originator's operating expenses total $150,000? Cash from investor Cash to borrowers Operating expenses Net profit