Explanation:

To calculate the weighted average coupon for HHMR, you need to find the weighted average of the yields of the four different pools of mortgages, using their respective amounts as weights. Here's how you can calculate it:

\text{WAC} = \frac{(24 \times 8.4\%) + (32 \times 7.0\%) + (16 \times 6.8\%) + (8 \times 5.6\%)}{24 + 32 + 16 + 8}

= \frac{(2.016) + (2.24) + (1.088) + (0.448)}{80}

= \frac{5.792}{80}

\approx 0.0724 \text{ or } 7.24\%

Q.3090 Happy Homes Realtors and Mortgagers (HHRM) is the manager of the largest real estate mortgage pool in the city of Sydney. Its MBS is composed of four different pools of mortgages:

`$24` million of apartment mortgages that yield 8.4%;

`$32` million of villa mortgages that yield 7.0%;

`$16` million of penthouse mortgages that yield 6.8%; and

`$8` million of farmhouse mortgages that yield 5.6%.

Using the information above, the weighted average coupon for HHMR is closest to:

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6.95%

7.24%

5.7%

7.6%

Financial Risk Manager Part 2

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