HW3 - 1 4 9 27 40 120 340(b Complete the following table...

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FIN 4243 Homework #3 Due November 23, 2009 1. Assuming a $100,000 par value, calculate the dollar price for the following Treasury coupon securities given the quoted price. (a) The quoted price for a $100,000 par value Treasury coupon security is 103-284. What is the dollar price? (b) The quoted price for a $100,000 par value Treasury coupon security is 105-059. What is the dollar price? 2. What arguments are offered for investing in nondollar bonds? 3. Explain why the higher the loan-to-value ratio is, the greater the credit risk is to which the lender is exposed. 4. Answer the below questions. (a) Complete the following table: CPR Assuming: Month 100% PSA 70% PSA 320% PSA
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Unformatted text preview: 1 4 9 27 40 120 340 (b) Complete the following table: SMM Assuming: Month 100% PSA 70% PSA 320% PSA 1 4 9 27 40 120 340 5. Construct a monthly cash flow schedule for a pass-through MBS with an initial principal of $1,000,000, a pass-through rate of 7%, a WAC of 7.5% and a WAM of 120 months. Assume the underlying mortgages are newly originated, in other words, you can start the CPR at month 0. Use Excel and attach the Excel sheets. Use the schedule format on page 256 of the book. [HINT: You want to be able to obtain the example cash flow schedule on page 256 of the book first.] a) Use 100 PSA as the benchmark. b) Use 180 PSA as the benchmark. c) Assume no prepayment....
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