Interest-only and mortgage-backed securities

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Reference no: EM131322423

(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? 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.

Reference no: EM131322423

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