The Harrison originated a pool containing 40 ten-year fixed interest rate mortga
ID: 2798629 • Letter: T
Question
The Harrison originated a pool containing 40 ten-year fixed interest rate mortgages with an average balance of $50,000 each. All mortgages in the pool carry a coupon of 10%. (For simplicity, assume that all mortgage payments are made annually at 10% interest.). Assume a constant annual prepayment rate of 10% (for simplicity, assume that prepayments are based on the pool balance at the end of the preceding year and begin at the end of year 1). Below is the pool’s cash flows:
Principal
Principal and
End of
Pool
due to
Interest Pmts
Year
Balance
Prepayment
to Issuer
1
1,674,509
200,000
325,491
2
1,383,747
167,451
290,763
3
1,124,372
138,375
259,375
4
893,419
112,437
230,952
5
688,284
89,342
205,136
6
506,716
68,828
181,568
7
346,862
50,672
159,854
8
207,384
34,686
139,478
9
87,891
20,738
119,493
10
0
0
(A)
What is the answer for the blank (A) in the table above?
$119,493
108,235
$96,680
$0.000
Principal
Principal and
End of
Pool
due to
Interest Pmts
Year
Balance
Prepayment
to Issuer
1
1,674,509
200,000
325,491
2
1,383,747
167,451
290,763
3
1,124,372
138,375
259,375
4
893,419
112,437
230,952
5
688,284
89,342
205,136
6
506,716
68,828
181,568
7
346,862
50,672
159,854
8
207,384
34,686
139,478
9
87,891
20,738
119,493
10
0
0
(A)
Explanation / Answer
Solution :
Principal & Interest payment to the issuer = ($87891*10%) + $ 87891
= $ 96680
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