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Bank of America issues a MBS based on a mortgage pool with the following terms: the mortgage pool face value, $10,000,000; the mortgage interest rate,

Bank of America issues a MBS based on a mortgage pool with the following terms: the mortgage pool face value, $10,000,000; the mortgage interest rate, 5%; the mortgage maturity, 4 years. Suppose the MBS has only one class of security, i.e., this is the basic MBS discussed during the class. The MBS has a 4 year maturity. 



What is the price of this MBS if the market interest rate is 4.5%?


Assume annual compounding is used and the annual prepayment rate is 10%. Also, assume prepayment is paid based on the beginning balance of the mortgage pool each year.



Finally, there is a 0.25% servicing fee each year based on the beginning balance of the mortgage pool?

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To calculate the price of the MBS we need to follow the steps below Step 1 Calculate the annual payment on the mortgage pool The mortgage interest rate is 5 and the mortgage pool face value is 1000000... blur-text-image

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