Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![Task 3: CMBS
(1) Why are bond rating agencies so vital in the MBS market?
(2) Consider a $100 million loan pool, packaged, and sold in securities of $1,000 each. The loans in the
pool have five years to run, a 9% interest rate, they are fully amortizing, and there is no
prepayment or default. The loan servicing charge is 1.5% of the loan balance outstanding.
a. If you want to offer a security at a yield of 10.5%, what is the price of the security? 6.
for correct cash flows, 1 for correct price)
b. What discount does that represent to the face value of the security? e,
(3) A mortgage pool has $1 billion in par value. The senior (A) tranche has 30% credit support
(subordination). The next tranche (B) has 25% credit support (subordination).
a. How much par value (principal) was issued in the A tranche??
b. How much par value (principal) was issued in the B tranche?
1](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc9a63020-a79f-49d9-956a-5f6fd76d733f%2Fe6dcdbae-05cc-42dc-807f-bed15a64bc34%2Fnl8qild_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Task 3: CMBS
(1) Why are bond rating agencies so vital in the MBS market?
(2) Consider a $100 million loan pool, packaged, and sold in securities of $1,000 each. The loans in the
pool have five years to run, a 9% interest rate, they are fully amortizing, and there is no
prepayment or default. The loan servicing charge is 1.5% of the loan balance outstanding.
a. If you want to offer a security at a yield of 10.5%, what is the price of the security? 6.
for correct cash flows, 1 for correct price)
b. What discount does that represent to the face value of the security? e,
(3) A mortgage pool has $1 billion in par value. The senior (A) tranche has 30% credit support
(subordination). The next tranche (B) has 25% credit support (subordination).
a. How much par value (principal) was issued in the A tranche??
b. How much par value (principal) was issued in the B tranche?
1
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