Overseas Bank Is Pooling 50 Similar and Fully Amortized Mortgages

question 56

Multiple Choice

Overseas bank is pooling 50 similar and fully amortized mortgages into a pass-through security. The face value of each mortgage is $100,000 paying 180 monthly interest and principal payments at a fixed rate of 9 percent per annum.
-What is the market (present) value of the mortgage pass-through to the investor if the interest rates on this risk category of securities decrease to 7 percent? (Note that investors receive payments net of the 50 basis points servicing fees.)

• A)$4,892,200.
• B)$5,000,000.
• C)$5,152,189.
• D)$5,477,910.
• E)$5,675,005.

---

Definitions:

T-Test

A statistical test used to determine if there is a significant difference between the means of two groups, which may be related in certain features.

Paired-Difference T-Test

A statistical method used to compare the means of two related groups to determine if there is a significant difference between them.

Normally Distributed

A type of probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean.

Sample Variances

A measure of the dispersion of a set of data points in a sample.