Consider two agency MPTS Initial Principal Balance (million $) Gross Mortgage Rate (%) Net Mortgage Rate...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider two agency MPTS Initial Principal Balance (million $) Gross Mortgage Rate (%) Net Mortgage Rate (%) Original Term (months) Remaining Term (months) Loan Age (months) PT 1 12.791 5.58375 5.34479 360 353 6 PT 2 76.734 6.16051 5.94576 360 356 3 Answer the following questions For simplicity, assume that a small Ay used in approximating derivatives does not affect the effective prepayment speed. 1. [2] What is the initial principal and cash flow yield for each class? Compare the total price of the tranches to the principal value. Generally, why does the total market value of the deal exceed the initial pool balance? 2. [2] Plot the CFY of each tranche vs the PSA (in the range 0 to 400), if the PSA changes (from base assumption) immediately after purchase. 3. [2] Compute the nominal- and Z-spread for each tranche at 100 PSA. Does a positive spread automatically mean that the tranche is a better investment than a Treasury? 4. [2] Plot the WAL of each principal-paying tranche vs the PSA (in the range 0 to 400). 5. [2] Plot the modified duration of each tranche vs PSA (in the range of 0 to 400). 6. [2] Plot the convexity of each tranche vs PSA (in the range of 0 to 400). Consider two agency MPTS Initial Principal Balance (million $) Gross Mortgage Rate (%) Net Mortgage Rate (%) Original Term (months) Remaining Term (months) Loan Age (months) PT 1 12.791 5.58375 5.34479 360 353 6 PT 2 76.734 6.16051 5.94576 360 356 3 Answer the following questions For simplicity, assume that a small Ay used in approximating derivatives does not affect the effective prepayment speed. 1. [2] What is the initial principal and cash flow yield for each class? Compare the total price of the tranches to the principal value. Generally, why does the total market value of the deal exceed the initial pool balance? 2. [2] Plot the CFY of each tranche vs the PSA (in the range 0 to 400), if the PSA changes (from base assumption) immediately after purchase. 3. [2] Compute the nominal- and Z-spread for each tranche at 100 PSA. Does a positive spread automatically mean that the tranche is a better investment than a Treasury? 4. [2] Plot the WAL of each principal-paying tranche vs the PSA (in the range 0 to 400). 5. [2] Plot the modified duration of each tranche vs PSA (in the range of 0 to 400). 6. [2] Plot the convexity of each tranche vs PSA (in the range of 0 to 400).
Expert Answer:
Answer rating: 100% (QA)
price couponpvaf ytm5redemptionpvif ytm5 1039923 Modified duration and c... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these accounting questions
-
Answer the following questions for the network shown below. Times shown are in days. a. What is the length of the critical path? b. What are the earliest start and latest start for E? c. What is the...
-
Answer the following questions for Canton Corporation, which was described in Problem 9-4. Assume that firm revenues grow at a rate of 10% per year during years 1 through 4 before leveling out at no...
-
Answer the following questions for the data displayed in Table 6.5. a. Was either the explanatory (row) or the response (column) variable fixed before the study was conducted? b. Is this an example...
-
The following information provides details of costs, volume and cost drivers for a particular period in respect of ABC plc, a hypothetical company: ( Details Direct Material $25 Cost Direct Labor 4/3...
-
Whitson Corporation issues $400,000 of 9%, 5-year bonds on January 1, 2014, at 104. If Whitson uses the effective-interest method in amortizing the premium,
-
1. Find the perimeter. 2. The Google Nexus 4, released in 2012, is the newest Google phone (at this writing). It measures 5.27 inches by 2.7 inches. Find the perimeter of the phone. 3. The average...
-
It is stated in the text that special relativity must be used to calculate the de Broglie wavelength of electrons in an electron microscope. Let us discover how much of an effect relativity has....
-
The following information relates to the Starr Companys Investment in Available-for-Sale Bonds account for 2007: Jan. 1 Purchased $30,000 face value of Bradford Company 8% bonds at 97 to yield 10%;...
-
2. Find all solutions for the following equation using the square root method. x-6x+9 8 = 2 Solution(s) 3. Find all solutions to the following equation any way you can (factoring, square root or...
-
The graph below shows the hours studied and the test grades on a biology test for 7 students. The red line on the graph can be used to approximate the test grade the average student receives for the...
-
A fast food chain recently conducted a survey among its customers to understand their satisfaction level with their new menu. The survey results showed that while customers were overall satisfied...
-
Describe three advantages of using shipping containers what are the recent trends of supply chain in colgate- Palmolive company and what is its financial status.
-
Review targets investments on the balance sheet. Explain the details of the investments based on the amounts and disclosures found in the financial statements. What information does the investment...
-
What is the extent of governmental involvement in the establishment and upkeep of a nation's infrastructure, and how does this contribute to the overall development and sustainability of the...
-
Canada Company issued share capital of 200,000 shares with par value per share of 10. Retained earnings on January 1, 2020 is 3,000,000. During the year: a. The entity reacquired its own shares of...
-
What is Economics for Life.? Explain as many economic terms as you can to Economics for Life.
-
Q.1. Kwetu Ltd is a business enterprise located in Kampala city. It is engaged in a highly competitive business of producing and marketing of bottled-mineral water. Required: (a) Explain the primary...
-
Determine the center and radius of each circle. Sketch each circle. 4x 2 + 4y 2 9 = 16y
-
Starwood Hotels (Starwood) owns and operates many hotel properties under well-known brand names, including Sheraton, W, Westin, and St. Regis. Starwood focuses on the upper end of the lodging...
-
TJX, Inc., an apparel retailer, reported net income (amounts in thousands) of $609,699 for Year 4. The weighted average of common shares outstanding during Year 4 was 488,809 shares. TJX, Inc.,...
-
Exhibit 8.21 presents selected financial statement data for three chemical companies: Monsanto Company, Olin Corporation, and NewMarket Corporation. (NewMarket was formed from a merger of Ethyl...
-
A beam problem under the pure bending moment is solved using five rectangular finite elements, as shown in the figure. Assume \(E=200 \mathrm{GPa}\) and \(v=0.3\) are used. The thickness of the beam...
-
A study of 16,405 adult daughters of women who immigrated to California from other countries measured the economic status of the daughters by the median household income Y for the ZIP code they lived...
-
Explain why you either agree or disagree with this interpretation of the results from estimating a regression model: This study concludes that the data are statistically substantial because there are...
Study smarter with the SolutionInn App