Understanding Dollar Rolls

Use the following information to answer the questions below:

13 Points Total

TBA Characteristics:

Settle Date Pool Balance Price Roll Days Forward Drop

Coupon WAC WAM Front Month 11/14/22 1,000,000 $100-20 29 0-12

6.0 6.782 356

FV of Payments Reinvestment Rate

Back Month 12/13/22 997,007.60 7,984.28 3.05%

Compute the total return when rolling the pool

What is the accrued interest on 11/14/22?

What is the amount invested on 11/14/22?

(1) (1)

What is the interest earned if invested at the reinvestment rate for 29 days? (use (1)

actual/360 convention)

What is the total cash value of the roll position on 12/13/22 before buying back the (1) pool?

What is the accrued interest on 12/13/22? (1)

What is the forward price on 12/13/22? (1)

How much does it cost to buy back the remaining pool balance on 12/13/22? (1)

Suppose you immediately sell the pool on 12/13/22 for $100-24, how much do you (1) receive?

What is total return in dollars? (1)

What is the annualized total return in percentage? (Use 360/act for calculation) (1)

Compute the total return when continuing to hold the pool

1. What is the total return when you continue to hold, then sell on 12/13/22 for $100-24? (1) 2. What is the annualized total return in percentage? (Use 360/act for calculation) (1) 3. What is the total return advantage for rolling? (1)