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What would the mortgage be worth in this case? Suppose that with certainty 50% of the pool prepays at time 0.5, regardless of the level
What would the mortgage be worth in this case?
Suppose that with certainty 50% of the pool prepays at time 0.5, regardless of the level of interest rates, and another 50% of the remaining mortgages prepay at time 1 (leaving 25% continuing to time 1.5.). Then the cash flows to the pool are riskless and described as follows: Period Beg. Scheduled Interest Prin = Prin Ppmt= End. Bal. Ending Bal. Payment = pp.rate x BB-Prin- SPxrem. frac. BBx5.5%/2 SP-Int (BB-Prin) 0.5 100.00 35.18 2.75 32.43 33.78 33.78 = Prin Ppmt 1.0 33.78 17.59 0.93 16.66 8.56 8.56 1.5 8.56 8.80 0.24 8.56 0 0Step by Step Solution
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