(a) Create a dollar roll matrix of breakeven rates for an agency MBS with gross and deal coupons of 8.035% and 7.5%, respectively, and settlement dates 6/14/18 and 8/15/18. Assume standard fully amortizing fixed rate mortgages with a term of 30:0, a WAM of 29:5 and an immediate price of 96-16. MBS CF’s are due the owner of record on the first of each month, but are paid on the 25th of that month. Assume standard PSA benchmarks.
The spreadsheet should correctly calculate the dollar advantage for any input above (though only for a two-month roll - not 1, or 3 or more). I do suggest you try to recreate the 1 month dollar roll in the lecture pdfs first, to get a feel for how it’s done (andCalculate the breakeven matrix for PSAs of 120, 150, and 180, and forward drops of -40, -35, and -30 (32’s) for the inputs listed in the first paragraph (these, or course, will be fixed numbers).
You can submit this “test run” on a separate worksheet along with your 2-month answer for partial credit if warranted). Do not hardcode inputs in formulae, e.g., rates/coupons, dates, terms or WAMs, prices, reinvestment rates (though you can stick to act/360), balances, PSA, etc.
Hand in your dollar roll for a forward drop of 35/32, a PSA of 150, and a reinvestment rate of 2% (though, of course, I should be able to change these and get the right dollar advantage).