The Underlying NHA MBS 15-Year Mortgage Pool Has a Principal

question 46

Multiple Choice

The underlying NHA MBS 15-year mortgage pool has a principal amount of $50 million and an annual yield of 6 percent (paid monthly) . Assume that there are no prepayments. What is the first monthly payment on the Principal Only (PO) strip?

• A)$3 million.
• B)$421,928.
• C)$250,000.
• D)$299,775.
• E)$171,928.

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Definitions:

Quoted Interest Rate

The interest rate that a lender states or advertises, not accounting for the compounding of interest within a specific period.

Interest Payment

The payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate.

Compounded

The process of generating earnings from previous earnings, calculated by applying the earnings rate not only to the principal but also to the accumulated earnings over past periods.

Compounds Semi-Annually

Interest on an investment or loan is calculated and added to the principal balance twice a year.