You work on the mortgage desk for the investment bank Lehmann Sisters and have just acquired a mortgage pass-through security with a par value of $250,000. This particular MPT is based on the cash ows received from 15-year xed rate mortgages underwritten by Fannie Farmer. The loans have a note rate of 6% and a coupon rate of 5%

a) What are the cash flows you receive in the first two months from this issue if you expect a prepayment speed corresponding to a 50 PSA?

b) What are the cash flows you receive in the first two months from this issue if you expect a prepayment speed corresponding to a 200 PSA?

c) ) After acquiring this MPT, you decide to use a 200 PSA to determine par values for the various tranches. You issue three bonds. Two sequential pay bonds, A and B, with par values of $125,000 and $75,000, respectively. The accrual bond, Z, is assigned a par value of $35,000. If the coupon rates for A, B and Z are 3.5%, 5% and 7%, respectively, what is the weighted average coupon for the issue?

d) What are the cash flows from each bond for the first two months? What is the par value for each bond after receiving two months of payments?

e) What are the cash flows received by the residual bond for the first two months?