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Suppose we have a new type of MBS to accommodate the short-term investor. This new MBS security instrument contains only 5-year mortgages. ACME, a private
Suppose we have a new type of MBS to accommodate the short-term investor. This new MBS security instrument contains only 5-year mortgages. ACME, a private secondary mortgage market, has pooled together ten $100,000 5-year mortgage loans. Note: To save space in writing out your work, you can scale the ten $100,000 to $100.
Calculate the duration for this MBS pool assuming annual compounding for three years at 10 percent interest which
a. is a "zero-coupon"
b. is an interest-only MBS
c. is fully amortizable over the three years
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