SDSU Annual Compounding for New MBS Security Instrument Research Paper
Description
Having Trouble Meeting Your Deadline?
Get your assignment on SDSU Annual Compounding for New MBS Security Instrument Research Paper completed on time. avoid delay and – ORDER NOW
Hi Bianca,
You helped me the other day on homework. I was wondering if you are interested in another homework problem to do? This is the following problem……..
Submission instructions: compute and handwrite solutions submit all work/setup which calculations
1a-c. Suppose we have a new type of MBS to accommodate the short-term investor. This new MBS security instrument contains only 5-year mortgages (in reality are rare if non-existent). ACME, a private secondary mortgage market, has pooled together ten $100,000 5-year mortgage loans. Note: To save space in writing out your work, you can scale the ten $100,000 to $100.
Calculate the duration for this MBS pool assuming annual compounding for three years at 10 percent interest which
a.is a zero coupon
b. is an interest-only MBS.
c. is fully amortizable over the five years.
2. Now assume that the interest-only MBS in problem 2b. is prepayable (but not defaultable). Use the option-theoretic model to price this MBS. Interest rates have a 50% chance of going up 1% each year and a 50% chance of going down 1% each year. From your results, qualitatively compare the MBS value without prepayment to the MBS value with prepayment. Note: To save space in writing out your work, you can scale the ten $100,000 to $100. in your solution show the work/setup which includes the calculations for all steps in Slide 17s Option Pricing Lecture