We valued an RMBS in class using Monte Carlo simulation. The RMBS has a par value of $1 million, a WAM of 10 years, a WAC of 8%, a pass-through rate of 8%, annual cash flows, a balloon payment at the end of the fourth year, and zero default risk. Figure 4.3 provides the binomial tree for the spot rates and the refinancing rates. Table 4.2 defines the 8 interest rate paths in terms of the refinancing rates. Table 4.4 provides the prepayment model.

1. Calculate the cash flows for years 1, 2, 3, and 4 along path 6.
2. The zero-coupon rates for years 1, 2, 3, and 4 along path 6 are 8.00%, 8.2996%, 8.1996%, and 8.2996%, respectively. Calculate the value of the RMBS for path 2.