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Category > Business & Finance Posted 06 Jun 2017 My Price 8.00

Asset Securitization

Asset Securitization 1. (a) Please explain how a PAC and a TAC works, and
(b) Show which security exhibits greater convexity, IO or PO? And why? 2. Based on the following data, please estimate the third month cash flows for
(1) servicing fees of the original pools
(2) total beginning balance and total monthly payments of the original pools
(3) each of the four pay-through securities with the following 5 categories
(i) Scheduled interest payments
(ii) Scheduled principal payments;
(iii) Unscheduled principal payments;
(iv) Total cash flows;
(v) Ending balance.
(3) At the beginning of the third month, the market rumors about interest hike are verified by the
Fed’s announcement of interest cut by 50 bps and prepayment speed is expected to rise, say to
500PSA. What price range (in dollar term) or the maximum price would you be willing to pay for
Class A? Would there be a negative convexity effect due tot he decline in interest rates?
Data:
(a)Original mortgage balance: $12,500,000.
(b) WAC: 6.950%
(c) Servicing fees: 0.6%
(d) WAM: 357 months
(e) PSA: 300
(f) Four pay-through securities:
Class
Par Value
A
$6,000,000
B
$1,200,000
C
$3,000,000
Z
$2,300,000 Coupon Rate
5.40%
6.60%
7.20%
7.60%

Answers

SuperTutor
(15)
Status NEW Posted 06 Jun 2017 12:06 AM My Price 8.00

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