to investors in this tranche.

a$2.$ If the interest rate demanded by investors on this investment is also $8$ percent, what would be the prices of the IO and PO strips?

b$.$ If interest rates increased to $10$ percent and prepayments remained at a zero rate, how would the price of the IO and PO strips

change? What is the percentage price change of each security?

c$.$ Investor interest rates now decline to $6$ percent. What is the price of the IO$?$ PO$?$ Prepayments now increase to a rate of $20$ percent

per year because mortgage borrowers in the pool begin to refinance at lower interest rates. What would prices for the IO and PO be

now? $($Assume that the $20\%$ prepayment received at the end of each year is based on the outstanding loan balances at the end of the

preceding year.$)$ What is the percentage price change of each security?

Complete this question by entering your answers in the tabs below.

Assuming annual payments and a zero prepayment rate, prepare a schedule showing the IO and PO cash flows that would be

payable to investors in this tranche.