QUESTION 5 Use the information below to answer questions 5 through 7. The Cashman mortgage company...
QUESTION 5
Use the information below to answer questions 5 through 7.
The Cashman mortgage company originated a pool containing 25 five-year fixed interest rate mortgages with an average balance of $100,000 each. All mortgages in the pool carry a coupon of 10%. (For simplicity, assume that all mortgage payments are made annually at 10% interest.) Assuming a constant annual prepayment rate of 10% (for simplicity, assume that prepayments are based on the pool balance at the end of the preceding year and begin at the end of year 1).
What is total principal and interest payment for year 2? (Choose the nearest value)
| a. |
$659,494 |
|
| b. |
$764,677 |
|
| c. |
$580,626 |
|
| d. |
$909,494 |
1 points
QUESTION 7
If the Cashman mortgage company decides to securitize the mortgages by issuing 1000 pass-through securities (MPTs). The servicing and guarantee fee will be 0.5% (based on pool balance at the end of the previous year). The current market rate of return is 8.5%. If each individual investor could only purchase one MPT, then what is the rate of return to these individual investors?
| a. |
9.5% |
|
| b. |
8.5% |
|
| c. |
10.5% |
|
| d. |
10% |
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