A. [20 points total] Consider two agency MPT

	PT 1	PT 2
Initial Principal Balance (million $)	12.791	76.734
Gross Mortgage Rate (%)	5.58375	6.16051
Net Mortgage Rate (%)	5.34479	5.94576
Original Term (months)	360	360
Remaining Term (months)	353	356
Loan Age (months)	6	3

1. Amortize both loans at 100 PSA (leave open to change). This is the base assumption.

2. Create a WAC IO and PO tranche to create a 5.75% deal coupon.

4. With the remaining assets, create a sequential pay structure of two classes, with initial principal A1:A2::3:1.

5. Assume all classes were bought under the base PSA assumption for: A-1: 103:01; A-2: 98:20; IO: 0:20 (notional); PO: 81:31. The notation :nn means nn/32nds.

6. Assume a Treasury term structure given by

z(T) = 0.03 ln[0.038 (T+40)]

where T is measured in months.

7. Make reasonable assumptions for any missing information and justify them. Take care that you may only think the information to be missing.