Suppose that an investor owns a pass-through in which the remaining mortgage balance at the beginning of a month is $200 million. Assuming that the CPR is 4.00% and the scheduled principal payment is $2.5 million, what is the estimated prepayment for this month?

Question

Quizplus · Accepted Answer

To calculate the estimated prepayment, we need to first calculate the actual principal payment for the month, which is the scheduled principal payment ($2.5 million) plus any prepayments.

The prepayment for the month can be calculated as follows:

Prepayment = Beginning mortgage balance x CPR 
Prepayment = $200 million x 4.00% 
Prepayment = $8 million

Therefore, the actual principal payment for the month is:

Actual principal payment = Scheduled principal payment + Prepayment 
Actual principal payment = $2.5 million + $8 million 
Actual principal payment = $10.5 million

Finally, we can calculate the estimated prepayment by subtracting the scheduled principal payment from the actual principal payment:

Estimated prepayment = Actual principal payment - Scheduled principal payment 
Estimated prepayment = $10.5 million - $2.5 million 
Estimated prepayment = $8 million

This matches the prepayment calculated earlier.

Therefore, the answer is choice letter C.

Suppose That an Investor Owns a Pass-Through in Which the Remaining