IDBI Money Market Mutual fund purchased a newly originated GNMA pass-through bond 7 years ago. The bond pays $1.2M
per month. There is a 45bp annual servicing fee on the pool and GNMA insurance costs 12bps pa. The current mortgage rate is 3.9%. Find the current value of the GNMA bond if there is 23 years left to maturity. Assume no prepayment risk.
Given, Bond pays per month = $ 1200000 Annual service fee = 45 basis points p.a = 0.45 % p.a Insurance costs... View the full answer