1. Principal-Only MBS and Interest-Only MBS) Suppose we construct principal-only (PO) and interest-only (IO) mortgage-backed securities (MBS) using the mortgage pass-through of the previous questions. 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?

Submission Guideline: Give your answer in millions rounded to two decimal places. For example, if you compute the answer to be $123,456,789,12, submit 123.46.

2.Principal-Only MBS and Interest-Only MBS) Referring to the previous question, what is the value of the IO MBS?

Submission Guideline: Give your answer in millions rounded to two decimal places. For example, if you compute the answer to be $123,456,789,12, submit 123.46.

3.(Principal-Only MBS and Interest-Only MBS) Referring to the previous question, what is the average life of the IO MBS?

Submission Guideline: Give your answer in years rounded to two decimal places. For example, if you compute the answer to be 12.1234 years, submit 12.12.

4.(Principal-Only MBS and Interest-Only MBS) Suppose now that you purchased the IO MBS of the previous question and that the price you paid was the same price that you calculated in the previous question. The risk-free interest rate suddenly changes from 4.5% to 3.5%. Everything else stays the same. How much money have you made or lost on your investment?

5.Principal-Only MBS and Interest-Only MBS) Referring to the previous question, suppose the risk-free interest rate suddenly changes from 4.5% to 3.5%and that the pre-payment multiplier changes from 100 PSA to 150 PSA. How much money have you made or lost on your investment in the IO MBS?

Submission Guideline: Give your answer in millions rounded to two decimal places. For example, if you compute the answer to be $123,456,789,12, submit 123.46.

 

8 View +1 Single MortgageCashFlows 9 10 11 12 13 14 15 16 17 1 Remaining Mortgage Balance 2 Mortgage Rate 3 Pass-Through Rate 4 5 Seasoning (Months) 6 7 18 19 20 21 22 23 24 25 26 27 28 29 Numbers File Edit Insert Table Organize Format Arrange View 30 31 32 33 34 35 36 37 38 39 40 41 125% 42 43 Zoom A Initial Monthly Payment Term of Loan (Months) Risk free per period Risk free per period Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 B 26 27 28 29 30 31 Conditional Prepayment Rate (CPR) 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% 2.00% 2.20% 2.40% 2.60% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4.20% 4.40% 4.60% 4.80% 5.00% 5.20% 5.40% 5.60% 5.80% 6.00% 5.97% Ev Add Category Pass-Through C $400 6.000% 5.000% $2.866 0 240 Single-Monthly Mortality (SMM) Rate 0.02% 0.03% 0.05% 0.045 3.5% 0.07% 0.08% 0.10% 0.12% 0.13% 0.15% 0.17% 0.19% 0.20% 0.22% 0.24% 0.25% 0.27% 0.29% 0.31% 0.32% 0.34% 0.36% 0.37% 0.39% 0.41% 0.43% 0.44% 0.46% 0.48% 0.50% 0.51% 0.51% D Insert Sequential-Pay CMO Beginning Monthly Balance 400 399 398 397 396 395 393 392 391 389 388 386 384 383 381 379 377 375 373 371 369 366 364 362 359 357 354 352 349 346 344 V E Share FFA Table 2.816 2.808 2.801 2.793 2.784 2.775 2.766 2.756 2.746 2.735 2.724 2.712 2.700 2.688 2.675 2.661 2.648 Window Help MBS Structure (1) T MV E Chart Text Shape Media Comment F Monthly Interest Monthly Paid In By Payment Mortgage Holders 2.866 2.865 2.864 2.863 2.861 2.859 2.856 2.852 2.848 2.844 2.839 2.834 2.828 2.822 Pass-Through Cash-Flows (Using PSA Prepayment Benchmark) Prepayment Multiplier (in PSA units) Average Life (Years) 2.00 2.00 1.99 1.98 1.98 1.97 1.97 1.96 1.95 1.95 1.94 1.93 1.92 1.91 1.90 1.89 1.88 1.87 1.86 1.85 1.84 1.83 1.82 1.81 1.80 G 1.78 1.77 1.76 1.75 1.73 1.72 $139.37 Monthly Interest Paid Out To Pass- Through Investors 1.67 1.66 1.66 1.65 1.65 1.64 1.64 1.63 1.63 1.62 1.61 1.61 1.60 1.59 1.59 1.58 1.57 1.56 1.55 1.54 1.54 1.53 1.52 1.51 1.50 H 1.49 1.48 1.47 1.45 1.44 1.43 100% IP 6 9.10 Scheduled Principal Repayment 0.866 0.870 0.874 0.878 0.882 0.885 0.889 0.892 0.896 0.899 0.902 0.904 0.907 0.910 0.912 0.914 0.916 0.918 0.920 0.922 0.923 0.924 0.926 0.927 0.927 0.928 0.929 0.929 0.929 0.929 0.929 1 Prepaymen. 0.067 0.133 0.199 0.265 0.331 0.396 0.461 0.525 0.589 0.653 0.716 0.779 0.841 0.902 0.963 1.023 1.082 1.141 1.199 1.256 1.312 1.367 0.00375 162.9018447844 $296.86 Total Principal Payment 0.932 1.422 1.476 1.528 [) 1.580 1.631 1.681 1.729 1.777 1.755 Po Collaborate J 80% Time 1 30 240 PSA Parameters 1.003 1.073 1.143 1.212 1.281 1.350 1.418 1.485 1.552 1.618 1.683 1.748 1.812 K 1.875 1.937 1.999 2.059 2.119 2.178 2.235 2.292 2.348 2.402 2.456 2.508 2.559 2.610 2.658 2.706 2.683 Wed 1:11 PM CPR Rate 0.2% 6.0% 0.0% 399.07 398.06 396.99 395.85 394.64 393.36 392.01 390.59 389.10 387.55 385.93 384.25 382.50 380.69 378.82 376.88 374.88 372.82 370.70 368.52 366.29 364.00 361.65 359.25 356.79 354.28 L 351.72 349.11 346.46 343.75 341.07 Q Ending PO R=4.5 10(r=3.5%) Mortgage Balance M Format Organize T == M N