Question 4 If the yield curve is flat at a rate of 5%, answer the following questions:

(a) Price a 10-year semi-annual pay bond, with a 5% coupon.

(b) Compute the duration of this bond.
(c) What is the convexity of this bond?

Answer
a. 1004.77
b. duration

T 0 0.5 1
CASH FLOW -1004.77 25 25
Discount rate 5.00% 5.00%
PV 24.3975018237133 23.809524
Total PV 1004.77
t*PV 12.1987509118567 23.809524
Total T*PV 8033.22
Macaulay duration 8.00
YTM 2.47% 5.00%
Modified duration 7.61
Convexity
T^2*PV 6.09937545592833 23.809524
Total T^2*PV 73780.73
Convexity 73.43

Question 8
Bond Market Value Duration Value
W $13 million 2 13
X $27 million 7 27
Y $60 million 8 60
Z $40 million 14 40
140
(a) What is the portfolio’s duration?
(b) If interest rates for all maturities change by 50 basis points, what is the appro
(c) What is the contribution to portfolio duration for each bond?

(d) What will be the duration of portfolio if Bond Z is replaced by another bond

Question 9
1. A bond portfolio manager has $500 million invested in 10-year STRIPS and
the Strip is a zero coupon bond and hence the duration = maturity
bond invest. duration w
500 10 0.56
400 12 0.44
total 900
 Portfolio duration 10.89
price change (%) 2.72%
Price change($) 24.5
if interest decrease, new portfolio value ≈
if interest increase, new portfolio value ≈

Question 10
A bond is trading currently at $980, current YTM for this bond is 12%.
if the interest rate change to 11.25 %, the bond price will become 1040. what is

% change in bond price 6.12%

change in yield -0.75%
Duration 8.16

Question 11 Term structure of interest rates is flat at 6%.

a person who is borrowing 1 million at the current floating rate with maturity of
What is dollar duration of the borrowing

Duration of bond 0.5 years

Portfolio 1000000
Dollar duration 500000

Question 12
A Bank is borrowing 1 million by selling fixed rate bond. The duration of the bo

a) What is dollar duration of the bond for the bank for 1 %?

b) What is dollar duration of the bond for the bank for 1 basis point?

dollar duration of bond 12000000

$ change in the portfolio due to 1% change in interest rate
$ change in the portfolio due to 1 bp change in interest rate

Question 13
term structure of interest rates 6%
Value of bond at 6% par value 1000000
duration of bond (borrowing) 12 years
Dollar duration for fixed rate 12000000
Duration for floating rate -0.5 years
dollar duration for floating rate -500000
Dollar duration of portfolio 11500000
$ change in the portfolio due to 1 bp increase in interest rate
$ change in the portfolio due to 1 bp decrease in interest rate

Question 15
A $100 million bond portfolio has a duration equal 15 year.
dollar duration 1500 million
$ change in the portfolio due to 10 bp decrease in interest rate
Question 16 An investor invested 50 crores in a 20 years maturity bond (8% coupon, 1000 fa

portfolio duration weight

50 13.5 0.5555556
40 0 0.4444444
total 90
Question 17
An investor invested 200 crores in a 15 years maturity bond (8% coupon, 1000 f
and sold 120 crores fixed rate bond maturing in 6 years of duration 4.5 years

portfolio duration weight

200 10 2.5
-120 4.5 -1.5
total 80

Question 18 The current price of a zero-coupon bond is 1020. the duration of the bond is 25 y
solution first calculate the % change in bond price, and then the new bond price
a. For a 0.25% increase in the interest rate, calculate the approximate price of t
b. For a 0.25% decrease in the interest rate, calculate the approximate price of t

Question 19
The current price of a zero-coupon bond is 900. the duration of the bond is 18 ye
With a 0.4% decline in the interest rate the price of the bond changes from 900 to 972.

% price change due to duration 7.20%

$ price change due to duration 64.8
actual price change 72
price change due to Convexity 7.19999999999999
1/2*C*(Δy)^2 7.19999999999999
C 899999.999999999

Question 20 The current price of a zero-coupon bond is 370. the maturity is 25 years.
With a 0.5% decline in the interest rate the price of the bond changes from 370 to 419.

since it is a zero coupon bond hence maturity=duration

% price change due to duration 12.50%
$ price change due to duration 46.25
convexity = T^2 625
%price change due to Convexity 0.78%
$price change due to Convexity 2.89
Total price change due to both 49.14
New price due to duration and convexity effect 419.14

Question 21 In a bond with option, the current market price is 950.

If the interest rate increases by 0.25% the bond price will be 900.
If the interest rate decrease by 0.25% the bond price will be 920.
 effective duration 4.21 years

Question 22
Assets ($ mn) dollar duration
Item Amount Duration
Cash 300 0 0
S.T. loan 900 65 58500
M.T. loan 700 4 2800
L.T. loan 600 10 6000
Total 2500 67300

Dollar duration of equity 55525

owing questions:

1.5 2 2.5 3 3.5 4 4.5 5 5.5

25 25 25 25 25 25 25 25 25
5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
23.235716 22.675737 22.129253 21.59594 21.07547939 20.567562 20.07188512911 19.588154 19.116081

34.853574 45.351474 55.323133 64.78782 73.76417785 82.270247 90.32348308099 97.940771 105.13845

year
in a flat curve, YTM = Discount rate
year

52.280361 90.702948 138.30783 194.36346 258.1746225 329.08099 406.4556738644 489.70385 578.26145

weight w*D w*D if Z is floating

9.29% 0.19 0.19
19.29% 1.35 1.35
42.86% 3.43 3.43
28.57% 4.00 0.10
100.00% 8.96 5.06

s points, what is the approximate percentage change in the value of the portfolio?

Bond
Duration contrib.
replaced by another bond of floating rate, and next reset date is after 4 months.

d in 10-year STRIPS and $400 million invested in 12-year STRIPS. What is the impact of a 25-basis point parallel shift of the te
e the duration = maturity
w*D
5.56
5.33
10.89
 924.5
875.5

his bond is 12%.

ill become 1040. what is duration of the bond?

ting rate with maturity of six months

nd. The duration of the bond be 12 years.

r 1 basis point?

120000
1200

-1150
1150

1.5 million
ond (8% coupon, 1000 face value) of duration 13.5 years, and 40 crores in 5 years floating rate security.

duration w*D
7.5
0
7.5

bond (8% coupon, 1000 face value) of duration 10 years,

duration 4.5 years

duration w*D
25
-6.75
18.25

uration of the bond is 25 years and the convexity is 400

bond price % change in bond price new Bond price
he approximate price of the bond. -0.06125 957.525
the approximate price of the bond. 0.06375 1085.025

ration of the bond is 18 years.

d changes from 900 to 972.

turity is 25 years.
d changes from 370 to 419.
dollar duration Liabilities ($ mn) dollar duration
Item Amount Duration
Deposits 650 0 0
S.T. debt 600 7 4200
M.T. debt 450 3.5 1575
L.T. debt 400 15 6000
Total 2100 11775
Equity 400
 6 6.5 7 7.5 8 8.5 9 9.5 10
25 25 25 25 25 25 25 25 1025
5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
18.655385 18.205792 17.767033 17.338849 16.920984 16.51319 16.115223 15.726847 629.26108

111.93231 118.33764 124.36923 130.04137 135.36787 140.36211 145.03701 149.40505 6292.6108

671.59386 769.19469 870.58463 975.31026 1082.943 1193.0779 1305.3331 1419.348 62926.108

Answer
8.96
The w*D column
W X Y Z
0.19 1.35 3.43 4.00
5.06

point parallel shift of the term structure on the value of the portfolio?
Question 1 Manager have invested 100mn in a bond portfolio of duration 3 years.
Now if manager borrows 300mn at floating rate and invest in the portfolio, what

Value duration w w*D

400 3 400.00% 12
-300 0 -300.00% 0
Total 100 12

What if borrowing is on fixed rate basis

Value duration w w*D
400 3 400.00% 12
-300 3 -300.00% -9
Total 100 3 No change

Question 11
a manager has 500 million to invest in the bond market but the manager wants to
Please explain how he can leverage his portfolio
a without changing the duration
b by increasing the duration
c if the duration of the bond manager will purchase is of 12 years,
what will be the duration of levered portfolio, if manager borrow at flo
Answer
a borrow 200 mn at fixed rate
b borrow at floating rate
c 16.6

Question 14
a. For a bond of 2 years (coupon rate = 10%, annually paid, face value = 1000;
YTM 8%
H 1.5 Yeayrs
T 1 2
cash flow 100 1010
23.148148 216.4781
239.6262

Question 16
An investor requires a target return of 10%. The minimum return acceptable to t
The expected worst case return in active portfolio management is 4%.
What % of the portfolio be managed as active portfolio and what % should be im
Answer
Active portion 33.33% This formula is not in the sheet, so ple
Immunised 66.67%

Question 19
1. Givent he following numbers, and using Altman model, predict if the firm w
TA = 200 crore
Revenue= 420 crore
WC = 16 crore
RE = 30 crore
EBIT = 40 crore
Market value of equity = 208 crore
Total liability = 154 crore

Answer
1.77639 less than 1.8 hence high probable to default
 f duration 3 years.
invest in the portfolio, what is duration of the levered portfolio?

No change

ket but the manager wants to have an exposure of $700 million.

urchase is of 12 years,
olio, if manager borrow at floating rate. Assume duration of floating rate as 6 months.

ally paid, face value = 1000; YTM = 8%) and duration of liability 1.5 years; calculate immunization risk

nimum return acceptable to the investor is 8%.

anagement is 4%.
olio and what % should be immunized

mula is not in the sheet, so please remember. Also remember that the ratio must be less than 100%

model, predict if the firm will default or not:

h probable to default
Question 3 The 6-month risk free rate = 7%, 9-month risk free rate is 7.5%, there are 182 da
What is value of k in 6x9 FRA (price of 6x9 FRA).

R1 7% R2 7.50%
T1 182 days T2 275

k = approximation method 8.48%

Question 4
In a FRA, the 3 month MIBOR rate = 8%, 6 month MIBOR rate is 8.5%,
there are 91 days in first 3 months, and 92 days in second 3 months.
What is value of k (fix rate) in 3x6 FRA (price of 3x6 FRA)

R1 8% R2 8.50%
T1 91 days T2 183
ΔT 92 days
k = approximation method 8.99%

Question 5
There is a 2x5 FRA as on 15th December 2024 @k = 8%, Principle amount is 20

a Who is short and who is long in this contract?

b What will be settlement amount on 15 May 2024, if 3-month reference rate at T 1
c What will be settlement amount on 15 May 2024, if 3-month reference rate at T 1

a short and long is based on underlying that is market interest rate (float
and the one who will pay floating (get fix, lender or investor) is short
b days 151 days
here we are calculating cash flow at the end of contract, hence no pres

c here we are calculating cash flow at the end of contract, hence no pres

Question 6 In a FRA, the 6 month MIBOR rate = 8%, 9 month MIBOR rate is 8.5%,
there are 183 days in first 6 months, and 92 days in second 3 months.
What is value of k (fix rate) in 3x6 FRA (price of 3x6 FRA)

Answer R1 8%
T1 183
ΔT 92
k = approximation method
after one month
5-month MIBOR rate = 7.5%, and 8-month MIBOR rate is 8%,
 there are 153 days in first 5 months, and 244 days in next 8 months,
Principle amount $25mn.
What is value of 2x5 FRA for Long.

R1 8%
T1 153 days
ΔT 92 days
k = approximation method
Principal 25000000
Value of FRA calculation after 1 month
it is because, a new k is calculated using n
expected cash flow at the end of the contract
Value of FRA= PV today (since cash is after 8 months, discount above c

Question 7
Some time ago a company entered into an FRA where it will receive 8% (with s
pay MIBOR on a principal of $50 million for the period which is between 1 year
At present forward MIBOR rate for the same period is 6% (with semiannual com
The 1-year risk-free rate is 7% (with continuous compounding).
What is the value of the FRA today?

P 50000000
Company will get a cash flow at the end of period
Present value after 1 year (i.e. 6 month before the maturity)
Present value today
value of the FRA today 452810.5

Question 7
EDF
P 100000000 standard
ΔT 90 days standard
Δy 1% given
Cash flow 250000 for investors
-250000 for borrower position
No discounting for present value in EDF for the contract period @ T1

Question 10
Days from Discount
Spot rate
Present factor
7.95% 121 97.46%
8.28% 303 93.52%
8.57% 486 89.49%
 8.81% 668 85.50%
8.98% 851 81.60%
447.58%
SWAP rate 8.22%

Question 13
difference in fix rate 3.00%
difference in fix rate 2.00%
difference in difference 1.00%
This 1% they can use to decrease their cost of financing and share amo
steps
1. check where is maximum difference, it is in fix rate
2. who have advantage in that? It is quality
3. so quality will borrow in fix rate, and risky will borrow in floating r
4. design the SWAP deal to share the total gain of 1%
Quality will pay floating to Risky Mibor+1%, and receiv
toal cost Mibor+
Quality will pay fix 8.5% and receive Mibor+1%
toal cost Fix

Question 14 Compare a 5-year loan at a fixed rate of 9.5% versus a 5-year floating-rate note a
Further, the company finds that the at present “fixed rate versus 1-year MIBOR”

Can't compare fix to floating, it must be apple to apple. So what if you borrow fl
the fix equivalent of Mibor borrowing
Mibor
Mibor equivalent fix rate 9.00%
Fix rate loan is at 9.5%
hence don't go for floating, go for fixed rate

Question 14

Payoffs on the First Payment Date

floating payoff 2125000
fixed payoff 2000000
investor payoff -125000
 borrower payoff 125000
Question 19
On August 13 of Year 1 (written 13-June-Year 1), a bank has a swap contract on

Fixed payment dates 11-Dec-Year 1, 11-Jun-Year 2, 11

Floating payment dates Same as fixed payment dates
Notional
Swap rate 8%
principal
6-month
Floating rate
MIBOR Position: Pay Fixed; Receive
Floating
MIBOR at last reset 8.50%

floating pay-off after 6 months (including face value)

value of floating bond today 50041601
Value of fix bond
T cash flow DF PV
0.5 dec 4000000 0.984 3936000
1 june 4000000 0.958 3832000
1.5 dec 4000000 0.93 3720000
2 june 4000000 0.9 3600000
2.5 dec 54000000 0.872 47088000
Value of fix bond 62176000

Value of SWAP -12134398.64 Position: Pay Fixed; Receive F

Question 23
Consider a hypothetical company that wishes to raise 4-year financing. In discus
One is to obtain a semiannual pay two-year loan at a fixed interest rate of 9.5%
Alternative MIBOR + 0.80%
Company finds that the current six-month MIBOR rate is 7%.
A 4-year 9%-strike cap (semiannual basis) is trading at a premium of $8.5 for ev

Worst case scenario is: interest rate is more than the cap

If co. go for floating rate, then worst case scenario is that company will pay 9%+
T CF
0 991.5 net proceed after deducting for the Cap co
1 -98.00
2 -98.00
3 -98.00
4 -1098.00
IRR 10.07%
Thus worst case scenario doesn't gurantee that floating rate will remain chepaer,

If a 4-year floor 6% strike floor (semiannual basis) for a premium of $5.40 is use
 T CF
0 996.9 net proceed after deducting for the Cap co
1 -82
2 -82
3 -82
4 -1082
IRR 8%
Now this is guranteeing that even a worst case scenario is a chepaer alternative.

Question 24
Principal
80,000,000
amount
June 11,
Spot date Swap rate (k) 8%
Year 1
Initial Libor
Term 4 years 8.50%
rate
Interest- Payment
6-month
rate frequency 6 months
Libor
index (fixed)
Payment
Reset
6 months frequency 6 months
interval
(floating)

Payment Days from Discount

Date Present Factor
11-Dec-
120 0.884
Year 1
11-Jun-
302 0.857
Year 2
11-Dec-
485 0.829
Year 2
11-Jun-
667 0.8
Year 3
11-Dec-
850 0.772
Year 3
11-Jun-
1032 0.8
Year 4
11-Dec-
1213 0.772
Year 4
5.714
a. Calculate SWAP rate as on today. Why this calculated SWAP rate
b. Floating rate payment and Fix payment on next payment date. Wh
 floating rate payment
fix rate payment
Net to borrower
Net to lender
c. Value of SWAP today (value of floating bond, value of fix bond, n

Value of floating rate bond

Value of fix rate bond
Cash flow
DF
PV
Value of fix rate bond

Net 6319200
-6319200

Option on bon

Question 6 A bond (FV=1000, coupon rate 9%, maturity 3 years) with put option currently s

T CF Disc rate PV
1 90 11% 81.08108
2 90 11% 73.04602
3 1090 11% 796.9986
951.1257
Value of straight bond 951.12570569
Market value 980
Value of option 28.874294309

Question 7
In a bond with call option (FV=1000, coupon rate 8%, maturity 10 years), the Y
the price of the call option in the bond is 80 (using black Scholes model). What

T 1 2 3 4
CF 80 80 80 80
PV 72.73 66.12 60.11 54.64
Value of straight bond 877.11
Value of call option 80
market value of the bond 797.11

Question 8
The market price of a callable bond is 875/. The value of the embedded call opti

value of the straight bond 957

Question 9 The market price of a putable bond is 1015/. The value of the embedded put opti

value of the straight bond 959

Question 10
In a bond with call option (FV=1000, coupon rate 8%, maturity 10 years), the Y
the price of the call option in the bond is 80 (using black Scholes model). What

since coupon rate = YTM, it is a par bond

Value of straight bond 1000.00
Value of call option 80
market value of the bond 920.00

Question 11 In a bond with call option (FV=1000, coupon rate 8%, maturity 10 years), the Y
the price of the put option in the bond is 60 (using black Scholes model). What i

since coupon rate = YTM, it is a par bond

Value of straight bond 1000.00
Value of put option 60
market value of the bond 1060.00

Question 12
A callable Bond with Face Value 1000, Coupon= 9%; Maturity 3 years, Straight

value of call option 78

Question 13
A puttable Bond with Face Value 1000, Coupon= 9%; Maturity 3 years, Straigh

value of put option 55

Question 14
A callable & puttable Bond with Face Value 1000, Coupon= 10%; Maturity 8 ye
The value of put option is 46/. What is value of call option

value of call option 116

Question 16
If Z spread in a callable bond is 1.4%, and spread for the call option is 0.6%, wh
OAS 0.80%

Question 17
If Z spread in a Putable bond is 1.6%, and spread for the put option is 0.34%, wh
 OAS 1.94%

Question 23
Silicon Valley Software Company’s convertible debentures issued at their $1,00
a debenture holder can exchange a bond for 25 shares of common stock. The bon
What is the conversion ratio, and conversion price

conversion ratio 25
conversion price 40

Question 24
A bond has face value 1000/ and conversion ratio 20. if the share price of compa

Parity 900

Question 26
Consider the following information about a convertible bond

Face value: $ 50,000

Issue price: $ 52000
Conversion ratio: 2500
Current share price: $ 16

Conversion price 20
Parity 40000
Premium 10,000
Premium in % 25.00%
 rate is 7.5%, there are 182 days in first 6 months, and 93 days in next 3 months.

days ΔT 93 days

Ideally days should be divided by 360 to convert into year,

but since both numerator and denominator are in "days" it is cancelled out

MIBOR rate is 8.5%,

second 3 months.

days

Ideally days should be divided by 360 to convert into year,

but since both numerator and denominator are in "days" it is cancelled out

= 8%, Principle amount is 20 million

f 3-month reference rate at T 1 turnout to be l = 7.4%. Who will get the amount and who will pay? Lender or borrower?
f 3-month reference rate at T 1 turnout to be l = 9 %. Who will get the amount and who will pay? Lender or borrower?

at is market interest rate (floating). So the one who will get floating (i.e. pay fix, borrower) is long (increase in interest increase g
x, lender or investor) is short position.

end of contract, hence no present value counting, only cash flow

end of contract, hence no present value counting, only cash flow

MIBOR rate is 8.5%,

second 3 months.

R2 8.50%
days T2 275
days
9.49%

R rate is 8%,
in next 8 months,

R2 8.00%
T2 244

8.74%

, a new k is calculated using new interest rate

nd of the contract -47916.6666666666 for borrower position because the new k is
er 8 months, discount above cash flow using 8 month rate)
-45387.7011599641 for borrower
45387.7011599641 gain to investor

ere it will receive 8% (with semiannual compounding) and

eriod which is between 1 years to 1.5 years in the future from today
d is 6% (with semiannual compounding).
mpounding).

500000
485642.9312 use discount rate applicable for the discounting period
452810.4677

for the contract period @ T1. To calculate value today we discount it for a rate from today to T1
 in favour of quality Company
Quality
Risky
ost of financing and share among them

t is in fix rate

risky will borrow in floating rate

al gain of 1%
Risky Mibor+1%, and receive fix 8.5%
0.50%
nd receive Mibor+1%
10.500%

us a 5-year floating-rate note at 1-year MIBOR + 1% when the current 1-year MIBOR rate is 6%?
d rate versus 1-year MIBOR” being offered to it in the swap market is 9%

pple. So what if you borrow floating and convert MIBOR borrowing to fix?
total
+ 1%
1% 10.00%

Principal amount 50,000,000

1 January,
Spot date Swap rate (k) 8%
Year 1
Term 5 years Initial MIBOR rate 8.50%
6-month Payment frequency
Interest-rate index 6 months
MIBOR (fixed)
Payment frequency
Reset interval 6 months 6 months
(floating)

actually we should use actual days/360 if days is available

 a bank has a swap contract on its books with the characteristics listed in following table

Dec-Year 1, 11-Jun-Year 2, 11-Dec-Year 2, 11-Jun-Year 3, and 11-Dec-Year 3

ed payment dates
50000000

osition: Pay Fixed; Receive

loating

g face value) 52125000 actually we should use actual days/360 if days is available

osition: Pay Fixed; Receive Floating

se 4-year financing. In discussions with their bankers, the company is presented with two alternatives.
a fixed interest rate of 9.5%

rate is 7%.
ng at a premium of $8.5 for every $1000 notional

9%

is that company will pay 9%+0.80% for a loan of 100,

after deducting for the Cap cost

ting rate will remain chepaer, hence can’t decide

for a premium of $5.40 is used

after deducting for the Cap cost

nario is a chepaer alternative. Therefore go for a floating rate loan with buyin a a cap and selling floor

hy this calculated SWAP rate is different from the SWAP rate given in the data? 7.98%
ent on next payment date. Who will receive it?
 3400000
3200000
200000
-200000
ting bond, value of fix bond, net of the two)

73725600
1 2 2 3 3
3200000 3200000 3200000 3200000 3200000
0.884 0.857 0.829 0.8 0.772
2828800 2742400 2652800 2560000 2470400
80044800

for reciever of fix rate (investor)

for borrower

Option on bond

rs) with put option currently selling at 980. the YTM of similar straight bond is 11%. What is value of the option?

8%, maturity 10 years), the YTM of similar straight bond is 10%),

black Scholes model). What is market value of the bond?

5 6 7 8 9 10
80 80 80 80 80 1080
49.67 45.16 41.05 37.32 33.93 416.39

lue of the embedded call option is 82/ (using black Scholes model). What is value of the straight bond?
alue of the embedded put option is 56/ (using black Scholes model). What is value of the straight bond?

8%, maturity 10 years), the YTM of similar straight bond is 8%),

black Scholes model). What is market value of the bond?

8%, maturity 10 years), the YTM of similar straight bond is 8%),

black Scholes model). What is market value of the bond

9%; Maturity 3 years, Straight bond value = 920 is currently trading at 842. What is value of call option?

9%; Maturity 3 years, Straight bond value = 920 is currently trading at 975. What is value of put option

Coupon= 10%; Maturity 8 years, Straight bond value = 1010 is currently trading at 940.

or the call option is 0.6%, what is OAS?

or the put option is 0.34%, what is OAS?

bentures issued at their $1,000 par value in July of 2015. At any time prior to maturity on July 15, 2035,
res of common stock. The bond cost a purchaser $1,000, the par value, when it was issued.

20. if the share price of company is 45, what is Parity

ender or borrower?
nder or borrower?

ncrease in interest increase gain),

-50333 for fix rate payers (borrower)

50333 for floating rate payers (investor)
83889 for fix rate payers (borrower)
-83889 for floating rate payers (investor)
position because the new k is less and borrower will pay old k

or the discounting period

Fixed rate Floating rate
8% MIBOR +1%
11% MIBOR + 3%
 4 4
3200000 83,200,000
0.8 0.772
2560000 64230400

of the option?
Question 9 Suppose that the CPR used to estimate prepayments is 8%. What is correspondin
CPR 8%
SMM 0.69%

Question 10
Suppose that investor owns a pass-through in which remaining mortgage balanc
Assuming that CPR is 8%% and scheduled principal payment is $25 million
What is the SMM & estimated prepayment for the month

Principal 500000000
Scheduled amortisation 25000000
CPR 8%
SMM 0.69%
Prepayment 3289081.7484422

Question 12
Calculate CPR & SMM for 10th month, in a loan with 210 PSA

CPR (10th month) standard

CPR (10th month) 210 PSA
SMM

Question 13
Calculate CPR & SMM for 50th month, in a loan with 150 PSA

CPR (50th month) standard

CPR (10th month) 150 PSA
SMM

Question 14
Please fill the following table

Month 100 PSA 90 PSA

CPR SMM CPR
1 0.20% 0.02% 0.18%
4 0.80% 0.07% 0.72%
9 1.80% 0.15% 1.62%
27 5.40% 0.46% 4.86%
40 6.00% 0.51% 5.40%
120 6.00% 0.51% 5.40%
340 6.00% 0.51% 5.40%

Question 15
Calculate EMI and Project the cash flow in 1st months if
Original Balance is =
Quoted rate
WAM = months
PSA is 100 PSA

EMI
Original Balance 100,000,000
Quoted rate 12%
WAM 180
int (monthly) 1%
PSA 100

EMI Payment 1200168

CPR 0.20% in 1st month
SMM 0.02%
Interest 1000000
Principal 200168
Prepaymen16648.572030511

Cash flow 1216817

ments is 8%. What is corresponding SMM

which remaining mortgage balance at the beginning of some month is $500 million.
ncipal payment is $25 million
the month

an with 210 PSA

2.00%
4.20%
0.36%

an with 150 PSA

6.00%
9.00%
0.78%

A 300 PSA
SMM CPR SMM
0.02% 0.60% 0.05%
0.06% 2.40% 0.20%
0.14% 5.40% 0.46%
0.41% 16.20% 1.46%
0.46% 18.00% 1.64%
0.46% 18.00% 1.64%
0.46% 18.00% 1.64%
100,000,000
12.00% , monthly compounding
180