Give me an example of A mortgage passthrough PT with par value$ a coupon which
equals the rate on the underlying mortgages on a year mortgage pool. The
current market is and prepayments at this rate equal $ per month. At this
prepayment rate, the PT will be paid off in month The required mortgage
payment for the $ year mortgage at is $ and the amount
received on the PT is $
b An annuity with a monthly payment of $ per month for months.
At an interest rate of the price of both securities is $ so that we are
indifferent between the two.
Suppose interest rates rise to and that there are no prepayments at this
rate. What is the payment on the PT and the life of the PT What happens
to the value of the PT versus the value of the annuity?
Suppose interest rates fall to and that prepayments rise to $ per
month. What is the payment on the PT and the life of the PT What
happens to the value of the PT versus the value of the annuity?
