Question
Similar to the mortgage pass-through security (PT), a competing bond has a par value of $100,000, a 4% coupon paid monthly, and a maturity of
Similar to the mortgage pass-through security (PT), a competing bond has a par value of $100,000, a 4% coupon paid monthly, and a maturity of 258 months. Like most bonds, the payments on this bond are interest only. The current market rate for similar bonds is 3.5%, and prepayments on that mortgage pass-through security currently equal $100 per month. Assume rates immediately drop to 3%, and prepayments increase to $150 on the mortgage pass-through as a result. What is the price of the bond today? (Please Answer with TVM on Financial Calculator Steps)
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