Correct answer: B. $4.414 million

We need:

1. Scheduled principal
2. Prepaid principal
3. Pass-through interest

Step 1: Compute mortgage interest

Pool balance = $1.0 billion

WAC = 4.80%

Monthly interest on the mortgage pool:

$$1{,}000{,}000{,}000 \times \frac{0.048}{12} = 4.0\text{ million}$$

Step 2: Compute scheduled principal

Total mortgage payment = $5.247 million

Scheduled principal:

$$5.247 - 4.0 = 1.247\text{ million}$$

Step 3: Compute prepayment under 100% PSA

At month 1, 100% PSA implies a very small CPR (0.2% annualized), so the expected prepayment is roughly $166 thousand on the remaining balance after scheduled principal.

So total principal returned to investors is approximately:

$$1.247 + 0.167 = 1.414\text{ million}$$

Step 4: Compute pass-through interest

Pass-through coupon = 3.60%

Monthly pass-through interest on the original $1.0 billion balance:

$$1{,}000{,}000{,}000 \times \frac{0.036}{12} = 3.0\text{ million}$$

Step 5: Total expected cash flow

$$1.414 + 3.0 = 4.414\text{ million}$$

Therefore, the total expected cash flow to the pass-through security is $4.414 million.