Question

20. What is the scheduled P&I payment of a residential mortgage with a remaining principal balance y, a coupon rate of 6.60%, and a remaining maturity of 26% years? How much of this principal balance will be paid off in three more years? 21. What is the scheduled P&I payment for the first vear of a one-year ARM with an initial principal balance of $175,000, an initial maturity of 30 years, the one-year LIBOR rate as its index (currently 2.90%), and a fixed spread of 250 bps? If, one year from now, the one-year LIBOR rate has fallen to 2.30%, what will be the scheduled P&I payment for the second year? 22. What is the scheduled P&I payment for the next two years of a two-year ARM with a remaining principal balance of $220,000, a remaining maturity of 13 years, the two-year Constant Maturity Treasury yield as its index (currently 2.40%), and a fixed spread of 300 bps? If, two years from now, the two-year CMT yield has risen to 3.00%, what will be the scheduled P&I payment for the following two years? 23. What is the WAC and WAM of a portfolio containing the four mortgages described in the following table? Remaining principal balance (S) Remaining maturity (months) Coupon rate (%) Mortgage 110,000 80,000 150,000 160,000 8.00 6.10 7.50 6.80 340 355 325 330

Answer 1

20]

Monthly loan payment is calculated using PMT function in Excel :

rate = 6.6% / 12   (converting annual rate into monthly rate)

nper = 26.5*12 (26.5 years remaining on loan with 12 monthly payments each year)

pv = 140000 (remaining principal balance)

PMT is calculated to be $933.09

A1 - X Fax =PMT(6.6%/12,26.5*12, 140000) A i * -PM176.58/12,26.5-2 B C D E A 1 ($933.09)! F G

Principal balance paid off in 3 more years (36 months) is calculated using CUMPRINC function in Excel :

rate = 6.6% / 12   (converting annual rate into monthly rate)

nper = 26.5*12 (26.5 years remaining on loan with 12 monthly payments each year)

pv = 140000 (remaining principal balance)

start period = 1 (We are calculating principal paid off between 1st and 36th month)

end period = 36 (We are calculating principal paid off between 1st and 36th month)

type = 0 (each payment is made at the end of month)

CUMPRINC is calculated to be $6,473.16

| A2 - X Fax =CUMPRINC(6.6%/12,26.5*12, 140000,1,36,0) D E F G H B C 1 2 A ($933.09) $(6,473.16)!