Using the assumptions of the MBS Issuer (no defaults), you set up the structure of the deal, modeling the CF In to the MBS Issuer, and the CFs Out to each MBS (A, B & C). You now have a complete stream of expected monthly cash flows for MBS C. Knowing i) what you will pay for MBC C (from question 14), ii) and the cash flows you will receive (that you just calculated in this question), then what is the YTM (monthly YTM) of MBS C? Answer to three decimal places.

You want to compare the yield of MBS C (from question 15) to the yield on the 30yr UST (see Appendix). What is the credit spread, in bps, of MBS C compared to the 30yr UST? Note: the YTM (IRR) you computed for MBS C is a monthly rate, and the UST YTM youre comparing it to is a semi-annual rate. You must convert the MBS C monthly rate to ta semiannual rate to make the comparison! Answer in bps, to 1 decimal place.

APPENDIX: THE MBS ISSUANCE You are a fixed income investor and you are evaluating a Mortgage-Backed Security (MBS) from the MBS Issuer You decide to focus on MBS C. MBS Issuer: The MBS Issuer will issue three MBS securities for a total of $5 mil face value. All of the MBS issued will be rated AAA and all mature in 30 years. MBS A will have a notional of $2.5 mil and will receive of the total cash flow coming from the Mortgage Pool. MBS A will be sold for a price of 99.50. MBS B & C will each have a notional of $1.25 mil and each will receive of the total cash flow coming from the Mortgage Pool. MBS B&C wilalso be sold for 99.50 each. . Mortgage Pool owned by MBS Issuer: The mortgage pool is comprised of 50 mortgages, with an aggregate total face value of $5 mil They are each identical: all are traditional mortgages (30yr, monthly pay), all are for $100,000, and all have the same interest rate of 4%. The MBS Issuer believes there will be no defaults Current Market Conditions Average Credit Spreads, in BPS, for Generic Credit Ratings, as compared to USTs 10yr 30yr 10 15 25 25 35 75 50 75 125 100 150 250 UST On-The-Run Par Bond Curve Syr 2.65% 10yr 3.13% YTM (SA) 2.81% 3.73% Reme mber, "par bonds" or "bonds trading at par", mean coupon must equal YTM APPENDIX: THE MBS ISSUANCE You are a fixed income investor and you are evaluating a Mortgage-Backed Security (MBS) from the MBS Issuer You decide to focus on MBS C. MBS Issuer: The MBS Issuer will issue three MBS securities for a total of $5 mil face value. All of the MBS issued will be rated AAA and all mature in 30 years. MBS A will have a notional of $2.5 mil and will receive of the total cash flow coming from the Mortgage Pool. MBS A will be sold for a price of 99.50. MBS B & C will each have a notional of $1.25 mil and each will receive of the total cash flow coming from the Mortgage Pool. MBS B&C wilalso be sold for 99.50 each. . Mortgage Pool owned by MBS Issuer: The mortgage pool is comprised of 50 mortgages, with an aggregate total face value of $5 mil They are each identical: all are traditional mortgages (30yr, monthly pay), all are for $100,000, and all have the same interest rate of 4%. The MBS Issuer believes there will be no defaults Current Market Conditions Average Credit Spreads, in BPS, for Generic Credit Ratings, as compared to USTs 10yr 30yr 10 15 25 25 35 75 50 75 125 100 150 250 UST On-The-Run Par Bond Curve Syr 2.65% 10yr 3.13% YTM (SA) 2.81% 3.73% Reme mber, "par bonds" or "bonds trading at par", mean coupon must equal YTM