a. Suppose a $100,000 mortgage financed at 9 percent (.75 percent monthly) is paid off in the first month after issuance. In this case, what are the cash flows to an IO strip and a PO strip from this mortgage?

b. Figures 21.5A and 21.5B assume a 100 PSA prepayment schedule. How would these figures change for a 200 PSA prepayment schedule or a 50 PSA prepayment schedule?

c. While A-, B-, and C-tranche principal is being paid down, Z-tranche interest is used to acquire principal for the Z-tranche. What is the growth rate of Z-tranche principal during this period?

Figures 21.5A

Figures 21.5B

Transcribed Image Text:

Outstanding principal $35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 B-tranche A-tranche 60 C-tranche 120 180 240 Age of mortgage pool (months) Z-tranche 300 360