P2.T5.104. Identify, describe, and contrast different standard prepayment measures.
Questions:
104.1. Under a constant maturity mortality approach, the monthly rate of prepayment (p) on a mortgage (aka, single month mortality rate, SMM) is found to be 0.40%. What is the annualized conditional prepayment rate (CPR)?
a. 4.70%
b. 4.80%
c. 6.00%
d. 95.30%
104.2. A pass-through mortgage-based security (MBS) assumes a 200% PSA prepayment speed. The pool has an original weighted average maturity (WAM) of 360 months but now has an age of 60 months (five years). What is the model's assumption, at this month 60, for the single month mortality (SMM) rate?
a. 0.92%
b. 1.00%
c. 1.06%
d. 1.14%
104.3. With respect to prepayment measures, EACH of the following statements is true EXCEPT:
a. PSA assumes lower prepayment rates for young mortgage pools
b. 100% PSA assumes a CPR of 0.2% for the first month, increasing by 0.2% per year per month for the next 29 months when it reaches 6% per year, and remains at 6% per year for the remaining years
c. At month 30, the remaining principal on mortgage pool will be lower under an assumption 150% PSA than under an assumption of 100% PSA
d. The single month mortality rate (SMM) under 100% PSA is exactly 50% of the SMM under 200% PSA
Answers:
Questions:
104.1. Under a constant maturity mortality approach, the monthly rate of prepayment (p) on a mortgage (aka, single month mortality rate, SMM) is found to be 0.40%. What is the annualized conditional prepayment rate (CPR)?
a. 4.70%
b. 4.80%
c. 6.00%
d. 95.30%
104.2. A pass-through mortgage-based security (MBS) assumes a 200% PSA prepayment speed. The pool has an original weighted average maturity (WAM) of 360 months but now has an age of 60 months (five years). What is the model's assumption, at this month 60, for the single month mortality (SMM) rate?
a. 0.92%
b. 1.00%
c. 1.06%
d. 1.14%
104.3. With respect to prepayment measures, EACH of the following statements is true EXCEPT:
a. PSA assumes lower prepayment rates for young mortgage pools
b. 100% PSA assumes a CPR of 0.2% for the first month, increasing by 0.2% per year per month for the next 29 months when it reaches 6% per year, and remains at 6% per year for the remaining years
c. At month 30, the remaining principal on mortgage pool will be lower under an assumption 150% PSA than under an assumption of 100% PSA
d. The single month mortality rate (SMM) under 100% PSA is exactly 50% of the SMM under 200% PSA
Answers:
