After 30 months, what is the 100 PSA benchmark conditional prepayment rate per year?

Question

Quizplus · Accepted Answer

The 100 PSA benchmark is a measure of the expected prepayment speed of a pool of mortgages. It represents a prepayment rate of 1% per month. After 30 months, we need to convert the monthly prepayment rate to an annual rate.

100 PSA = 1% per month
30 months = 30% of the total period

Annual prepayment rate = 30% x 1% per month x 12 months = 3.6%

Therefore, the conditional prepayment rate per year is 3.6%, which is closest to option C (6%).

After 30 Months, What Is the 100 PSA Benchmark Conditional