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Portfolio (assume annual payments for each bond and for the mortgage) *Mortgage security has a 0% PSA. The mortgage has 10 years remaining at a
Portfolio (assume annual payments for each bond and for the mortgage) *Mortgage security has a 0\% PSA. The mortgage has 10 years remaining at a 6% mortgage rate, face value of loan outstanding of $100,000. Therefore, the borrower pays the investor $13,586.80 per year. The mortgage payments are assumed to be risk-free (insured by FHA). - Given the discount rates (zero coupon curve) above, compute the price of each asset in the portfolio using the asset cash flows through time. Assume that the B rated bond cash flows are discounted at a spread of 3% to the zero-coupon curve. - Compute the total dollar value of each asset and of the total holdings and weight in each asset. - Compute DV01 and the Macaulay duration of each asset, and for the entire portfolio. Assume that cash flows to the mortgage do not change with increase/decrease of discount rates by small amounts. - Discuss in a couple of lines the interest rate risk of the portfolio (using the Macaulay duration). Portfolio (assume annual payments for each bond and for the mortgage) *Mortgage security has a 0\% PSA. The mortgage has 10 years remaining at a 6% mortgage rate, face value of loan outstanding of $100,000. Therefore, the borrower pays the investor $13,586.80 per year. The mortgage payments are assumed to be risk-free (insured by FHA). - Given the discount rates (zero coupon curve) above, compute the price of each asset in the portfolio using the asset cash flows through time. Assume that the B rated bond cash flows are discounted at a spread of 3% to the zero-coupon curve. - Compute the total dollar value of each asset and of the total holdings and weight in each asset. - Compute DV01 and the Macaulay duration of each asset, and for the entire portfolio. Assume that cash flows to the mortgage do not change with increase/decrease of discount rates by small amounts. - Discuss in a couple of lines the interest rate risk of the portfolio (using the Macaulay duration)
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