1.(Level-Payment Mortgages) Compute
the monthly payment on a 30-year level payment mortgage assuming an annual
mortgage rate of 5% and an initial mortgage principal of $400,000. (Answer is
2147.29)

2.(Mortgage Pass-Throughs) Consider
a $400 million pass-through MBS that has just been created (so the 'seasoning'
of the pass-through is equal to 0). The underlying pool of mortgages each has a
maturity of 20 years and an annual mortgage coupon rate of 6%. The pass-through
rate of the mortgage pool is 5%. Assuming a prepayment multiplier of 100 PSA
what is the total amount of interest paid to the pass-through investors?
(Answer is 171.18)

3.(Mortgage-Pass Throughs) Referring to the same mortgage pass-through of the
previous question, what is the total amount of the prepayments? (Answer is 181.09)

4.(Mortgage-Pass Throughs) Referring to the same mortgage pass-through of the
previous question, what is the total amount of the prepayments if the rate of prepayments increases to 200 PSA? (Answer
is 268.15)

5.(Principal-Only MBS and Interest-Only MBS) Suppose we construct principal-only (PO) and interest-only
(IO) mortgage-backed securities (MBS) using the mortgage pass-through of the
previous questions. Assume a prepayment multiplier of 100 PSA. What is the
present value of the PO MBS if we use an annual risk-free rate of 4.5% to value
the cash-flows? (Answer is 280.10)

6. (Principal-Only MBS and
Interest-Only MBS) Referring to the previous question, what is the value of the
IO MBS? Submission Guideline: Give your answer in millions rounded to two
decimal places. For example, if you compute the answer to be $123,456,789,12,
submit 123.46.

7. (Principal-Only MBS and
Interest-Only MBS) Referring to the previous question, what is the average life
of the IO MBS? Submission Guideline: Give your answer in years rounded to two
decimal places. For example, if you compute the answer to be 12.1234 years,
submit 12.12.

8. (Principal-Only MBS and
Interest-Only MBS) Suppose now that you purchased the IO MBS of the previous
question and that the price you paid was the same price that you calculated in
the previous question. The risk-free interest rate suddenly changes from 4.5%
to 3.5%. Everything else stays the same. How much money have you made or lost
on your investment? Submission Guideline: Give your answer in millions rounded
to two decimal places. For example, if you compute the answer to be
$123,456,789,12, submit 123.46.

9. (Principal-Only MBS and
Interest-Only MBS) Referring to the previous question, suppose the risk-free
interest rate suddenly changes from 4.5% to 3.5% and that the pre-payment
multiplier changes from 100 PSA to 150 PSA. How much money have you made or
lost on your investment in the IO MBS? Submission Guideline: Give your answer
in millions rounded to two decimal places. For example, if you compute the
answer to be $123,456,789,12, submit 123.46

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