(15 marks)
Consider a mortgage pass-through with the following information:
A principal bal...
Mathematics, 25.11.2021 15:50 sparky1234
(15 marks)
Consider a mortgage pass-through with the following information:
A principal balance of $100 million, 3.5% pass-through rate, backed up by a mortgage loan pool with a weighted average coupon (WAC) of 4% and a weighted average maturity (WAM) of 355 months.
(a) Assume that the above mortgage pass-through was used as collateral to create a CMO structure with the following tranches:
1. A 3.5% coupon Planned Amortization Class (PAC) bond created assuming 80 to 250 PSA with a par value of $55 million
2. A 3.5% coupon Support bond with a par value of $45 million
What is the principal payment disbursed to the Support bond in the first month if the actual total principal payment from the collateral is $280,000? (Give your answer to the nearest dollar)
(b) Assume that the coupon rate for both the PAC bond and the Support bond in part (a) is 3%. How much of a 2.5% coupon notional interest-only (IO) class can be created?
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