Fixed Income Homework3 Hariharan Alavandan

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University of Cincinnati Blue Ash College *

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BA60670H42

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Finance

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Apr 3, 2024

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Submitted by Hariharan Alavandan alavanhn@mail.uc.edu Class Number: 11660 Section 001 HOMEWORK 3: FIN7037 FIXED INCOME
FIN7037: Fixed Income Security Analysis Homework 2 1. a. Amortization schedule for the first 10 months Amount $100,000 Periods 360 Rate 0.8333% Payment $877.57 Months Beginning Payment Interest Principal Ending Balance 1 $100,000.00 $877.57 $833.33 $44.24 $99,955.76 2 $99,955.76 $877.57 $832.96 $44.61 $99,911.15 3 $99,911.15 $877.57 $832.59 $44.98 $99,866.18 4 $99,866.18 $877.57 $832.22 $45.35 $99,820.82 5 $99,820.82 $877.57 $831.84 $45.73 $99,775.09 6 $99,775.09 $877.57 $831.46 $46.11 $99,728.98 7 $99,728.98 $877.57 $831.07 $46.50 $99,682.48 8 $99,682.48 $877.57 $830.69 $46.88 $99,635.60 9 $99,635.60 $877.57 $830.30 $47.27 $99,588.32 10 $99,588.32 $877.57 $829.90 $47.67 $99,540.65 b . As you can see from the amortization table for the last 3 months, mortgage balance at the end of 360 th month assuming no prepayment is 0 c. Mortgage balance at the end of month 270 assuming no prepayment The remaining principle at the end of the month 270 is simply the present value of the remaining 90 months of payment of Coupon = PMT= 877.57 in 360-month payment period. So, PMT = -877.57, N = 90, I/Y = 0.8333%, FV = 0, We use financial calculator to compute PV = 55409.40. Mortgage balance at the end of month 270 assuming no prepayment = 55409.40 Month s Beginning Payment Interest Principa l Ending Balance 358 $2,589.44 $877.57 $21.58 $855.99 $1,733.45 359 $1,733.45 $877.57 $14.45 $863.13 $870.32 360 $870.32 $877.57 $7.25 $870.32 $0.00
(Note: - As explained in the partial answers, this can also be calculated by computing beginning balance for N = (90+ 1) and then subtracting respective interest from Principle payment and calculating the ending balance) 2. 1) 2-Bedroom condo in Boston. The price is $300,000. You have a 30-year 3% APR mortgage with 20% down payment N=360, I/Y= 3/12= 0.25, PV = 240,000, FV = 0, Calculating Monthly mortgage payment using financial calculator PMT = 1011.849 Monthly mortgage payment = PMT = 1011.85 2) Annual investment return on rental Using financial calculator, N = 60 (semiannual 30 years), PV = - 60,000, FV = 300,000, PMT = 0, we compute semi-annual yield = 2.718% Annual yield = Bond- equivalent yield = 2.718*2 = 5.437 3) Using financial calculator, N = 360, PV = - 60,000, PMT = 2000- 200- 1011.85= 788.15, FV = 390,000 Monthly yield = 1.3702% Semi-annual yield = (1.013702) ^ 6 = 8.51% Bond – equivalent yield = 8.51%*2 = 17.02% 3. ( Calculated from excel) a) CPR = 6%*(t/30) t < 30 months CPR = 6% t > 30 months Mont h 100% PSA 70% PSA 320% PSA     (0.7*100% PSA) (3.2*100% PSA) 1 0.002 0.0014 0.0064 4 0.008 0.0056 0.0256 9 0.018 0.0126 0.0576 27 0.054 0.0378 0.1728 40 0.06 0.042 0.192 b) (From excel) SMM = (1- ((1-CPR) ^ (1/12)) Month 100% PSA 70% PSA 320% PSA CPR SMM CPR SMM CPR SMM 1 0.002 0.01668% 0.001 4 0.01167% 0.006 4 0.05349% 4 0.008 0.06691% 0.005 6 0.04679% 0.025 6 0.21588% 9 0.018 0.15125% 0.012 6 0.10561% 0.057 6 0.49316% 27 0.054 0.46154% 0.037 8 0.32059% 0.172 8 1.56848% 40 0.060 0.51430% 0.042 0 0.35692% 0.192 0 1.76092%
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