How much money have made or lost on investment

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Problem 1) (Principal-Only MBS and Interest-Only MBS) Referring to the previous question, what is the average life of the IO MBS?

Problem 2) (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?

Problem 3) (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?

Reference no: EM132609138

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