Question

In: Finance

The prepayment rate for a particular mortgage pool is expected to be 225 PSA. Which of...

The prepayment rate for a particular mortgage pool is expected to be 225 PSA. Which of the following would best estimate this pool's single monthly mortality rate (SMM) for the 15th month? A. 0.361% B. 0.581% C. 0.924%

Solutions

Expert Solution

Conditional Prepayment Rate or CPR (15th month): 15 x 0.2% = 0.03 (Since CPR = 0.2% from 1 to 30 month)

225 PSA =2.25 x CPR = 2.25 x 0.03 = 0.0675

Single Monthly Mortality or SMM (5th month): 1 - (1-0.0675)^1/12 = 1- 0.9325^(1/12) = 0.581%


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