P2.T5.206. Fixed Income (III. MBS)

[Suzanne Evans]

Questions:

206.1. A pass-through mortgage-backed security (MBS) with a weighted average maturity (WAM) of 30 months has an original principle balance of $2.0 billion. If the valuation model assumes a 300% PSA prepayment speed, which is nearest to the first month's prepaid (not scheduled) principal?

a. $519,000
b. $833,000
c. $1.00 million
d. $2.15 million

206.2. Assuming a flat term structure with constant yield of 4.0%, the value of an MBS is $549.0 million. If the MBS is re-priced under a yield of 4.5%, the value is $537.0 million; and if the MBS is re-priced under a yield of 3.5%, the value is $558.0 million. Which is nearest to the effective duration?

a. 1.75 years
b. 3.83 years
c. 8.00 years
d. 13.13 years

206.3. The value of MBS is $335.0 million when the yield is 3.0%. If the MBS is re-priced to assume a yield of 3.3%, the value of the MBS drops to $329.0 million; and if the MBS is re-priced at a yield of 2.7%, the value increases $340.0 million. Which is nearest to the effective convexity?

a. -332
b. -141
c. -18
d. +5

Answers:

• Here in forum