Dear Dr Fids,
Can you please help these questions? It is about MBS cash flow.?
Generating MBS cash flows can be messy so we are going to write some
functions in R that
allows us to generate the cash flows to structure and price the asset.
1. Using the MBScf function, generate cash flows for the following pool
Balance = 25,000,000
- WAC = 4.5%
- WAM = 355
- WALA (Age) = 5
- Net = 4%
Assuming the following prepayment speeds: 100% PSA, 300% PSA, 500% PSA
and 900% PSA.
What is the average life of the pool for each speed?
2. Consider a pool with a $75,000,000 balance, a WAC of 3.45% and a WAM of
(a) What is the scheduled balance the next month?
(b) Suppose the actual balance next month is 741,250,000, what is the CPR?
(c) If the loan is 28 months old, what is the PSA?
3. Suppose you purchase a Fannie Mae 30 YR 3.5% MBS (3.5% net coupon) with
balance on March 17. The current WALA = 10, WAM = 350, and WAC = 4.15%
(a) What is the accrued interest?
(b) The MBS is priced as 135 bps off the 10-year Treasury at 275 PSA. What is the
yield you will use to price the MBS if the 10-year is currently yielding 1.86%?
(c) Using the yield from (b), what is the price of the MBS taking the actual delay
into account? (See slide 5-33, round price to nearest 1/4 tick)
(d) What is the invoice amount paid for the purchase of the bond?
This question was answered on: Sep 18, 2020
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