1. The Mini Fannie just acquired a pool of mortgages with total principle value of $100,000...

1. The Mini Fannie just acquired a pool of mortgages with total principle value of $100,000 . All loans in the pool are identical - constant payment mortgage with 7 % interest rate, 5- year term and annual payment . Mini Fannie is going to issue 100 shares of mortgage pass- through securities with this pool . Given an anticipated constant prepayment rate of 10% per year and 0% servicing fee ,

1) List the stream of 5-year annual cash flows to investors (loan payments plus prepayments).

2 ) Given the 5- year cash flow in 1) , what is the per share value of the pass- through if investors ' required rate of return is 6% ? What if they require 8% return ?

Expert Solution

Input /Formula:

Output / Final Solution

prepayment for month ‘t’ = CPR × (beginning mortgage balance for month t –scheduled principal payment for month t)

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jeff jeffy answered 2 years ago

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