Ultimate access to all questions.
Explanation:
Since CPR = 1 − (1 − SMM)¹²
SMM = 1 − (1 − 0.06)¹/¹² = 0.005143
Prepayment = SMM × (Outstanding principal less scheduled monthly principal payment)
= 0.005143 × ($100,000 − $28.61) = $514.15
Things to remember.
SMM is a measure of the monthly mortgage prepayment rate of the security’s mortgage pool. A SMM of 0.5143% means that approximately 0.5143% of the remaining mortgage balance at the beginning of the month, less the scheduled principal payment, will prepay that month.
In other words,
Prepayment ith month ($) = SMM × (Principal Bal. i − Principal Pmt. i)
No comments yet.
Q.3048 Trident Investments has invested $100,000 in a mortgage pool with scheduled monthly principal payments of $28.61. The mortgage pool has a conditional prepayment rate (CPR) of 6% and the pool is seasoned. Given this information, the single monthly mortality rate and the estimated prepayment are closest to:
A
SMM: 0.005098; Prepayment: 509.92
B
SMM: 0.005113; Prepayment: 544.15
C
SMM: 0.005274; Prepayment: 529.25
D
SMM: 0.005143; Prepayment: 514.15