BOA originates 1000 Fully Amortizing Fixed Rate Mortgages, each has a $100,000 balance, 6.5% interest rate (no fees), 30 year term, and annual payments. BOA immediately issues IO and PO strips backed by the pool of these mortgages and sells them to investors who discount payoffs at 5.5%.
7. What profits does BOA make immediately?
Payment = 7657.74,
Price per mortgage = 7657.74/.055 * (1 – 1.055^30) = 111295.70, <------- I do not understand how they are getting this number because (1 – 1.055^30) is a negative number. Would someone be able to clarify?
Profits per mortgage = 111295.70 – 100000 = 11295.70, profits from the pool = 1000 * 11295.70 = 11,295,700
Thee is a typo
Instead of 7657.74/.055 * (1 – 1.055^30)
It should be
=7657.74/0.055*(1–1/1.055^30)= 111295.70
BOA originates 1000 Fully Amortizing Fixed Rate Mortgages, each has a $100,000 balance, 6.5% interest rate...
BOA originates 100 Fully Amortizing Fixed Rate Mortgages, each has a $1,000 balance, 5% interest rate (no fees), 25-year term, and annual payments. BOA immediately issues IO and PO strips backed by the pool of these mortgages and sells them to investors who discount payoffs at 4%.1. What profits does BOA make immediately? (the answer will be a few million dollars, an 8-digit number)2. What is the value of all PO strips?3. What would be the value of all PO...