Suppose the initial value of a pool of mortgages with a contract rate of 4%...
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Suppose the initial value of a pool of mortgages with a contract rate of 4% (compounded monthly) and maturity of 15 years is $100 million. The pool is divided into five sequential-pay tranches (A, B, C, D, E) each with a par value of $20 million. In month 23, the remaining balance(after scheduled principal payments and prepayments) in the pool is $80 million. The CPR equals 10%. Remember you need to recompute the scheduled payment to the pool based on the remaining life of the mortgage.
For month 24, determine the total cash flow to each tranche.
i. CFA =
ii. CFB =
iii. CFC = CFD = CFE =
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