Consider a mortgage pass-through security on a pool of 30


Consider a mortgage pass-through security on a pool of 30 mortgages. All mortgages are $1,000,000, 6%, 30-year constant payment mortgage with annual payments. Suppose the prepayment pattern is as follows: year 1, no prepayment, year 2, 5 mortgages prepaid, year 3, 15 mortgages prepaid, and year 4, 5 mortgages prepaid. 5 prepaid in year 5 as well. Assume that theservicing and guarantee fees are 75 bps and the required rate of return on the security is 5%, what is the value of the security?

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Financial Management: Consider a mortgage pass-through security on a pool of 30
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