PSA 100 -{3 1. You are starting a new boutique investment banking firm and have just purchased a mort- gage pass-through security from Big Mac that is free from default risk. The par value of the pass-through is $100,000 and the note rate and coupon rates used to calculate the cash flows from this security are 5.75% and 5%, respecitvely. The stated maturity of the security is 30 years and payments are made to you on an annual basis. For this unusual security, the PSA prepayment convention computes the conditional prepayment rate, CPR, for each year by the following formula: A) (96) for t 5 Note that, given the annual payment, there is no need to compute a SMM rate. (a) Determine the scheduled payments to principal and interest and prepayments that you expect to receive from this security for the first two years based on a PSA speed of 215. (b) You plan to issue a new collateralized mortgage obligation (CMO) to investors with the following par values and coupon rates Tranche Par value Coupon rate A B 40,000.00 22,500.00 25,000.00 4,000.00 0.035000 0.045000 0.060000 0.080000 Z where Tranches A, B and C are sequential pay and Z is an accrual tranche. Determine the cash flows for the first two years for each tranche based on a 215 PSA prepayment speed. (c) Based on the 215 PSA, tranche A is retired in year 5 after receiving their remaining par value equal to $10,599.61. If the accrued value of the Z-tranche in the fourth year is $5877.31 and the principal and prepayment received in year 5 are $1,263.51 and $9,130.37, respectively, what is the total cash flow received by the B tranche in 5 and what is its remaining par value after receiving this payment? year PSA 100 -{3 1. You are starting a new boutique investment banking firm and have just purchased a mort- gage pass-through security from Big Mac that is free from default risk. The par value of the pass-through is $100,000 and the note rate and coupon rates used to calculate the cash flows from this security are 5.75% and 5%, respecitvely. The stated maturity of the security is 30 years and payments are made to you on an annual basis. For this unusual security, the PSA prepayment convention computes the conditional prepayment rate, CPR, for each year by the following formula: A) (96) for t 5 Note that, given the annual payment, there is no need to compute a SMM rate. (a) Determine the scheduled payments to principal and interest and prepayments that you expect to receive from this security for the first two years based on a PSA speed of 215. (b) You plan to issue a new collateralized mortgage obligation (CMO) to investors with the following par values and coupon rates Tranche Par value Coupon rate A B 40,000.00 22,500.00 25,000.00 4,000.00 0.035000 0.045000 0.060000 0.080000 Z where Tranches A, B and C are sequential pay and Z is an accrual tranche. Determine the cash flows for the first two years for each tranche based on a 215 PSA prepayment speed. (c) Based on the 215 PSA, tranche A is retired in year 5 after receiving their remaining par value equal to $10,599.61. If the accrued value of the Z-tranche in the fourth year is $5877.31 and the principal and prepayment received in year 5 are $1,263.51 and $9,130.37, respectively, what is the total cash flow received by the B tranche in 5 and what is its remaining par value after receiving this payment? year
