What is prepayment risk? How does prepayment risk affect the cash flow stream on a fully amortized mortgage loan? What are the two primary factors that cause early payment?
Answer to relevant QuestionsWhat other services do FIs provide to the financial system?How does the liquidity premium theory of the term structure of interest rates differ from the unbiased expectations theory? In a normal economic environment, that is, an upward-sloping yield curve, what is the relationship ...What is a collateralized mortgage obligation (CMO)? How is it similar to a pass-through security? How does it differ? In what way does the creation of a CMO use market segmentation to redistribute prepayment risk?A bank has made a three-year, $ 10 million dollar loan that pays annual interest of 8 percent. The principal is due at the end of the third year.a. The bank is willing to sell this loan with recourse at an 8.5 percent ...Consider a GNMA mortgage pool with principal of $ 20 million. The maturity is 30 years with a monthly mortgage payment of 10 percent per year. Assume no prepayments.a. What is the monthly mortgage payment (100 percent ...
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