Balance of the mortgage pool

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Bank of America issues a MBS based on a mortgage pool with the following terms: the mortgage pool face value, $10,000,000; the mortgage interest rate, 5%; the mortgage maturity, 4 years. Suppose the MBS has only one type of security, i.e., this is the basic MBS discussed during the class. The MBS has a 4 year maturity. What is the price of this MBS if the market interest rate is 4.5%? Assume annual compounding is used and the annual prepayment rate is 10%. Also, assume prepayment is paid based on the beginning balance of the mortgage pool each year. Finally, there is a 0.25% servicing fee each year based on the beginning balance of the mortgage pool.

Reference no: EM132743690

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