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Question 5 (Principal-Only MBS and Interest-Only MBS) Suppose we construct principal-only (PO) and interest-only (10) mortgage-backed securities (MBS) using the mortgage pass-through of the previous

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Question 5 (Principal-Only MBS and Interest-Only MBS) Suppose we construct principal-only (PO) and interest-only (10) 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

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