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10. Explain why the rate of prepayment is so important to the valuation of mortgage-backed securities. Be sure to identify the circumstances that might cause mortgage-backed securities to receive prepayments. 11. Consider a firm that is considering issuing $25,000,000 in new debt. It will take about 4 months to get the issue ready and registered. The firm has determined that if they were to issue the debt today, they could do so for an 8% annual coupon on 10-year debt. How could the firm use the 10-year US Government Bond Interest Rate Futures contracts to protect the issue from an increase in interest rates of 1 percentage point? Note that the 10-year US Government Futures Contract is based upon a $100,00010-year US Government Bond with a 6% coupon rate that pays interest semi-annually. Compute the current value of one futures contract and the number of futures contracts that the firm will need to utilize to cover the $25,000,000 in debt. Note that the current yield on the 10-year US Government bond is 4.85% annually. You may use Excel to complete this problem. Be sure to submit the Excel file with your exam if you do so