Question: BOA originates 100 Fully Amortizing Fixed Rate Mortgages, each has a $1,000 balance, 4% interest rate (no fees), 25-year term, and annual payments. BOA immediately

BOA originates 100 Fully Amortizing Fixed Rate Mortgages, each has a $1,000 balance, 4% interest rate (no fees), 25-year term, and annual payments. BOA immediately issues IO and PO strips backed by the pool of these mortgages and sells them to investors who discount payoffs at 3%. Hint: use the Prepay.xlsx file on Blackboard, especially the last years HW7 example.

2. What is the value of this pool of mortgages, according to investors?

3. What profits does BOA make immediately? (the answer will be a few thousand dollars)

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