Question
You work for a pension fund that wants to diversify its portfolio by investing in mortgagebacked securities. The fund has identified a potential deal, but
You work for a pension fund that wants to diversify its portfolio by investing in mortgagebacked securities. The fund has identified a potential deal, but it needs your help to model the cash flows, especially because the underwriters have chosen not to follow the typical PSA approach. The prospectus states that the deal coupon is 6.5%, the WAM is 360 months, and the loan stratification is provided in the following table:
Net Note Rate Balance in Cohort
4.382% 1,200,000
4.441% 6,700,000
4.810% 13,000,000
4.923% 14,500,000
5.011% 19,000,000
5.662% 22,000,000
5.717% 22,500,000
5.829% 23,400,000
5.999% 20,100,000
6.091% 18,000,000
6.226% 16,500,000
6.373% 14,000,000
6.498% 11,900,000
6.680% 3,000,000
6.705% 1,500,000
Finally, the prospectus indicates that prepayments should be modeled using the PPC approach with the following ramp: 2-12% CPR over the first 25 months.
1. Use this information to prepare a monthly cash flow statement for your firm to understand what they can expect to earn if they invest in the entire security Expert Answer An expert answer will be posted here. Post a question Your toughest questions, solved step-by-step.
2. Using a money-weighted return calculation, what is your firms expected return on this investment
can you answer two please
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started