Assume annual payments and zero prepayment rate

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An investor is consdering the purchase of either an IO and PO from CMO offering. The portion of the mortgage pool backing is 10 years and an 8% interest rate. Assume annual payments and a zero prepayment rate Required: a) If the interest rate demanded by investors on this investment is 8%, caqlculate the value of IO and PO b) i)If the market rates increased to 10%, calculate the value of IO and PO strips ii) Which security, the IO or PO exhibits the greatest price change from (a) above. Explain why?

Reference no: EM131182948

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