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Unformatted text preview: Monthly payment Principal r (1 r ) m (1 r ) m 1 $300,000 0.085 12 1 0.085 12 360 1 0.085 12 360 1 $2,306.74 Question and Problem Answers page 1 Chapter 20  Asset Backed Securities ¡ 20  1: A. The monthly mortgage payment is $2,306.74 B. On the first payment $2,125.00 is interest and the remainder, $181.74, is principal. $300,000 0.085 12 C. The first payment reduces or pays down the principal by $181.74. This means you still owe $299,818.26 on your mortgage. The second payment will thus include interest of $2123.71 and $183.03 principal. $299,818.26 0.085 12 ¡ 20  2: If the current mortgage rates are lower than 7.3% (6.8% + 0.5%) then the dealer wants to keep the securities with the lowest probability of prepayment because these mortgages generate a higher than current rate of interest. 250% PSA means that, even when mortgage rates remain steady, this pool will prepay faster than the PSA benchmark pool (perhaps the mortgages are all in ChampaignUrbana where, due to the University, mobility is high). By slipping your colleague the highest %PSAare all in ChampaignUrbana where, due to the University, mobility is high)....
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 Spring '07
 Jackson
 Financial Markets, Mortgage loan, prepayment rate

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