Assume That a Mortgage Pool Follows a Specified PSA Prepayment

question 41

Multiple Choice

Assume that a mortgage pool follows a specified PSA prepayment schedule. Given this, the cash flow yield on the mortgage pool will do which one of the following?

• A)equal the average interest rate of the mortgages contained in the pool
• B)equal the anticipated cash flow for the next year divided by the current value of the pool
• C)equate the present value of the future cash flows from the pool to the current value of the pool
• D)equate the average interest rate on the mortgages to the current market rate of interest
• E)equal the current market rate of interest

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Definitions:

Units

The quantitative units of product or service in accounting or inventory management.

Average Cost

Average cost refers to the total cost of production divided by the number of units produced, used in evaluating cost efficiency.

Helpline Costs

Expenses incurred in operating a support service that provides assistance and information to customers.

Calls

Options contracts that give the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a set price within a defined period.