Use the information below to answer questions a and b.

a) The Harrison originated a pool containing 40 ten-year fixed interest rate mortgages with an average balance of $50,000 each. All mortgages in the pool carry a coupon of 10%. (For simplicity, assume that all mortgage payments are made annually at 10% interest.). Assume a constant annual prepayment rate of 10% (for simplicity, assume that prepayments are based on the pool balance at the end of the preceding year and begin at the end of year 1). Below is the pools cash flows from years 1 to 9:

		Principal	Principal and
End of	Pool	due to	Interest Pmts
Year	Balance	Prepayment	to Issuer
1	1,674,509	200,000	325,491
2	1,383,747	167,451	290,763
3	1,124,372	138,375	259,375
4	893,419	112,437	230,952
5	688,284	89,342	205,136
6	506,716	68,828	181,568
7	346,862	50,672	159,854
8	207,384	34,686	139,478
9	87,891	20,738	119,493

Assume that eight years have passed, and the market interest rates are 9%, what is the price that Harrison could obtain if he wants to sell the pool to FNMA now?

	a.	$210,026
	b.	$140,231
	c.	$236,911
	d.	$96,680

b) If Harrison decides to securitize the mortgages by issuing 100 pass-through securities (MPTs) instead of selling the pool of mortgage to FNMA, by the end of year 1, what is total payments to investors who bought the MPTs? Suppose the servicing and guarantee fee is 0.5% (based on pool balance at the end of the previous year) , and the current market rate of return is 9.5%.

	a.	$515,491
	b.	$505,491
	c.	$525,491
	d.	$225,491