Credit: 10 and PO Strips (Ch. 20) Saved 1 kipped An investor is considering the purchase...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Credit: 10 and PO Strips (Ch. 20) Saved 1 kipped An investor is considering the purchase of either an IO or PO strip from a CMO offering. The portion of the mortgage pool backing this tranche consists of $1.18 million in mortgages with a remaining maturity of 10 years and an 8 percent interest rate. Required: a1. Assuming annual payments and a zero prepayment rate, prepare a schedule showing the IO and PO cash flows that would be payable to investors in this tranche. a2. If the interest rate demanded by investors on this investment is also 8 percent, what would be the prices of the IO and PO strips? b. If interest rates increased to 10 percent and prepayments remained at a zero rate, how would the price of the IO and PO strips change? What is the percentage price change of each security? c. Investor interest rates now decline to 6 percent. What is the price of the IO? PO? Prepayments now increase to a rate of 20 percent per year because mortgage borrowers in the pool begin to refinance at lower interest rates. What would prices for the IO and PO be now? (Assume that the 20% prepayment received at the end of each year is based on the outstanding loan balances at the end of the preceding year.) What is the percentage price change of each security? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required C Assuming annual payments and a zero prepayment rate, prepare a schedule showing the IO and PO cash flows that would be payable to investors in this tranche. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) Beginning Balance Interest IO/Strip Principal PO/Strip PO Prepayment Ending Balance Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Required A Required A2 > 1 Credit: 10 and PO Strips (Ch. 20) Saved 1 kipped An investor is considering the purchase of either an IO or PO strip from a CMO offering. The portion of the mortgage pool backing this tranche consists of $1.18 million in mortgages with a remaining maturity of 10 years and an 8 percent interest rate. Required: a1. Assuming annual payments and a zero prepayment rate, prepare a schedule showing the IO and PO cash flows that would be payable to investors in this tranche. a2. If the interest rate demanded by investors on this investment is also 8 percent, what would be the prices of the IO and PO strips? b. If interest rates increased to 10 percent and prepayments remained at a zero rate, how would the price of the IO and PO strips change? What is the percentage price change of each security? c. Investor interest rates now decline to 6 percent. What is the price of the IO? PO? Prepayments now increase to a rate of 20 percent per year because mortgage borrowers in the pool begin to refinance at lower interest rates. What would prices for the IO and PO be now? (Assume that the 20% prepayment received at the end of each year is based on the outstanding loan balances at the end of the preceding year.) What is the percentage price change of each security? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required C Assuming annual payments and a zero prepayment rate, prepare a schedule showing the IO and PO cash flows that would be payable to investors in this tranche. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) Beginning Balance Interest IO/Strip Principal PO/Strip PO Prepayment Ending Balance Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Required A Required A2 > 1
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Suppose you are given the following set of data with three Boolean input variables a, b, and c, and a single Boolean output variable K. a bc K 1 0 1 1 1 1 1 1 1 1 1 1 1 1 0 01 For parts (a) and (b),...
-
Given the function find the initial and final values of the function by evaluating it in both the s-domain and timedomain. 24(s +10) F(s) = s(s + 2) (s + 4)
-
Calculate each of the following: (a) 5% of 24 (b) 8% of 88 (c) 48% of 4563 (d) 112% of 56
-
Information from Razure Adventures Companys financial statements for the current year are provided in the Working Papers. Work independently to complete the following problem. 1. Calculate the...
-
Using this supplemental information, analyze the flowchart in the diagram for Problem 14. The personnel department determines the wage rate of all employees. To start the process, personnel sends the...
-
Define a Marketing Qualified Lead ( MQL ) . The number of contacts received through forms A person who is more likely to become a customer A sales person who identifies leads The estimated customer...
-
muhammad wants to save $372,000.00 to buy a new sports car. he makes deposits of $3,705.50 every year into an investment account (at the start of each period) and it takes 33 periods to reach the...
-
What are UCITS and what are their advantages?
-
What happens on forex markets?
-
Explain the following ways of conducting international banking: correspondent banking, representative office, overseas branches, overseas subsidiary.
-
Describe the difference between a building society and a credit union.
-
How can views be used to enforce access controls in the database subsystem?
-
13: 14 6. 18 6. 12 13 21 3 11 8. 4 [Indian Postal Assistant 2013] () 13 (b) 12 (c) 11 (d)
-
As indicated by mutual fund flows, investors tend to beat the market seek safety invest in last year's winner invest in last years loser
-
Give one example each of when an auditor might render an unqualified opinion with an explanatory paragraph, a qualified opinion, and an adverse opinion. When might a disclaimer be an acceptable...
-
Assume the successor auditor requests permission from a potential client to discuss with the predecessor the reasons and circumstances for the firms withdrawal from the engagement. What ethical...
-
Assume a local health club, Texas Two-Step (TTS), records 100 percent of amounts received from annual membership fees in the month the cash is received, which is the first month of the new year. The...
Study smarter with the SolutionInn App