Problem set 2 solutions (1).docx

Soln starting pool

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SOLN: Starting Pool Balance=(50*100,000)+(100*250,000)+(50*300,000)=45,000,000 [(50*100,000*0.04)+(100*250,000*0.0425)+(50*300,000*0.050)]/45,000,000=(200,000+1,0 62,500+750,000)/45,000,000 4.47 Question 4. If these 200 loans are pooled to create a MPT, what is the starting pool balance in dollars? Assume the loans are not seasoned before securitization. SOLN: Starting Pool Balance=(50*100,000)+(100*250,000)+(50*300,000)=45,000,000 Question 5. Now imagine that these loans whose origination values are listed above are seasoned for 6 months before creating a MPT. What is the starting pool balance? Assume that all loans are fixed rate, fully amortizing and make monthly payments. Additionally, assume that in the time period between origination and securitization every borrower makes exactly their scheduled payment (no prepayments, no defaults). Express your answer in dollars rounded to the nearest cent, if necessary. (Hint: calculate balance outstanding on each segment of the pool after making 6 payments.) SOLN: You know if the loans are seasoned, then the starting pool balance has to be less than 45,000,000 Group 1 PV=100,000; FV=0; N=360; i/y=4/12 CPT PMT=-477.41 Change N to 6, CPT FV=-99,128.27 Multiply by 50 (number of this type of loan)= 4,956,413.60 Group 2 PV=250,000; FV=0; N=180; i/y=4.25/12 CPT PMT= -1,880.70 Change N to 6, CPT FV=-243,975.20 Multiply by 100 (number of this type of loan)= 24,397,519.93 Group 3 PV= 300,000; FV=0; N=360; i/y=5/12 CPT PMT= -1,610.46 Change N to 6, CPT FV= -297,814.56 Multiply by 50 (number of this type of loan)= 14,890,727.81 Sum Group 1+ Group 2 + Group 3= 44,244,661.34
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Question 6. What is the WAM of this pool at issuance? Assume that the loans are not seasoned at the time of securitization. Express your answer in number of months SOLN: 260 Months [(5M/45M)*360]+ [(25M/45M)*180]+[(15M/45M)*360] 40+100+120=260
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