Question 1 MBS Part (a) Complete the following table assuming a prepayment rate of 140 PSA Original balance $150,000,000 Pass through rate 7 WAM 360 months month outstanding balance SMM mortgage payment interest scheduled principal repayment Pre payment Total principal repayment Cash flow 1 $150,000,00 0 023 $1,316,357 36 $875,000 $441,357 36 $34,941 88 $476,299 24 $1,351,299 24 2 $148,648,700 76 0 047 $1,316,357 36 $867,117 42 $449,239 93 $69,337 90 $518,577 83 $1,385,695 25 3 $1,316,357 36 $457,323 16 Note you don't have to replicated the entire table in your answer Showing the workings and values of all missing items of Month 3 suffices Part (b) Suppose you own a mortgage pass through security as described in Part (a) Describe the influence of a decrease in mortgage rates on the total return of the mortgage backed security as compared to an otherwise identical plain vanilla bond

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Question: Question 1 MBS Part (a) . Complete the following table assuming a prepayment rate of 140 PSA: Original balance: $150,000,000 Pass-through rate: 7% WAM: 360

Question 1 MBS

Part (a). Complete the following table assuming a prepayment rate of 140 PSA:

Original balance: $150,000,000

Pass-through rate: 7%

WAM: 360 months

month	outstanding balance	SMM	mortgage payment	interest	scheduled principal repayment	Pre-payment	Total principal repayment	Cash flow
1	$150,000,00	0.023%	$1,316,357.36	$875,000	$441,357.36	$34,941.88	$476,299.24	$1,351,299.24
2	$148,648,700.76	0.047%	$1,316,357.36	$867,117.42	$449,239.93	$69,337.90	$518,577.83	$1,385,695.25
3	?	?	$1,316,357.36	?	$457,323.16	?	?	?

Note: you don't have to replicated the entire table in your answer. Showing the workings and values of all missing items of Month 3 suffices.

Part (b). Suppose you own a mortgage pass-through security as described in Part (a). Describe the influence of a decrease in mortgage rates on the total return of the mortgage backed security as compared to an otherwise identical plain vanilla bond.

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