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LOS c: Calculate the prepayment amount for a month, given the single monthly mortality rate.
Q1. Given a single monthly mortality rate (SMM) of 0.45%, a mortgage pool with a $200,000 principal balance outstanding at the beginning of the 26th month, and a scheduled monthly principal payment of $60.00 for the 26th month, the estimated prepayment is:
A) $899.73.
B) $450.00.
C) $426.38.
Q2. The SMM formula is: SMM = 1 – (1 – CPR)1/12. Calculate the single monthly mortality rate (SMM) for month 6, 100 PSA:
A)0.000837.
B)0.001006.
C)0.001259.
Q3. Suppose that the single-monthly mortality rate (SMM) is equal to 0.004. The mortgage balance for a certain month is $100 million, and the scheduled principal payment for the same month is $2.5 million. What is the assumed prepayment amount for this month?
A) $390,000.
B) $960,000.
C) $460,000.
Q4. Suppose that the single-monthly mortality rate (SMM) is equal to 0.003. The mortgage balance for a certain month is $250 million, and the scheduled principal payment for the same month is $3 million. What is the assumed prepayment amount for this month?
A) $741,000.
B) $356,000.
C) $672,000.
Q5. Paul Advani, an unemployed telecommunications analyst, is scheduled to interview tomorrow with Manish Preeh, managing partner of the mortgage-banking division of Robust Investors. Since Advani has not worked in mortgage banking and his knowledge of the field is somewhat rusty, he asks to borrow a friend’s Level II CFA Study Notes so he can prepare for the interview.
After a brief introduction and a discussion of Advani’s resume, Preeh tells Advani he is concerned about the candidate’s familiarity with the industry. Preeh asks Advani a series of questions to test his knowledge.
Preeh begins with a question about prepayment rates and benchmarks. He asks Advani to name some conventions used as benchmarks for prepayment rates. Advani comes up with four benchmarks:
- Conditional prepayment rates
- Single monthly mortality (SMM) rates
- Nonconforming mortgage rates
- Public Securities Association (PSA) prepayment benchmarks
Then Preeh asks Advani to describe the use of excess servicing spreads as internal credit enhancements.
Preeh’s next question requires Advani to discuss reasons for using the stated maturity of a mortgage passthrough security versus using the average life measure. Advani responds that the security’s maturity is less valuable to bond analysis than is the average life measure.
Then Preeh turns the questions to Advani’s product knowledge. Preeh gives Advani four characteristics that allegedly apply to stripped mortgage-backed securities (MBS), then asks him which one of the characteristics is accurate. The characteristics are as follows:
- Principal and interest are not allocated on a pro-rata basis.
- Owners of these securities benefit from quick prepayments.
- They pay significantly lower yields than their "whole" counterparts.
- They are less volatile than the passthrough from which they were stripped.
Preeh proceeds to ask Advani how planned amortization class (PAC) bonds are protected against prepayment risk to create products that provide better asset and liability matching for institutional investors.
The interview ends with a question using the following data:
- The single-monthly mortality rate (SMM) is equal to 0.003.
- The mortgage balance for March is $250 million.
- The scheduled principal payment is $3 million in March, and $3 million in April.
Which of the following characteristics best describes stripped MBS?
A) Owners of these securities benefit from quick prepayments.
B) Principal and interest are not allocated on a pro-rata basis.
C) They are less volatile than the passthrough from which they were stripped.
Q6. Which of the following statements regarding excess servicing spreads is most accurate? Excess serving spread accounts involve the allocation of:
A) expenses into accounts for senior and subordinate tranches.
B) the servicing fee into a separate reserve account.
C) surplus cash into a separate reserve account.
Q7. The estimated April prepayment is closest to:
A) $729,777.
B) $732,000.
C) $741,000.
Q8. Which of the following is least likely used as a benchmark for prepayment rates?
A) Nonconforming mortgage rates.
B) SMM rates.
C) Conditional prepayment rates.
Q9. Which of the following responses to Preeh’s question about PAC bonds is most accurate? They:
A) structure the PAC tranche so it has more contraction risk but less interest-rate risk than the support tranches.
B) gain prepayment risk protection as their par value falls relative to that of the support tranche.
C) accrue the interest for one tranche and redistribute it to the support tranches.
Q10. Advani’s assertion that the maturity is a less-useful analytical tool than the average life measure of a mortgage passthrough security is:
A) correct because the maturity does not take into account the assumed prepayment rate.
B) incorrect because the average life measure does not take interest-rate risk into account.
C) correct because the investor may not know the maturity, but can calculate the average life measure. | 
发表于 2009-3-23 16:50
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