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 Interest Only (IO) strip?

Question

Quizplus · Accepted Answer

The IO strip only pays interest and no principal. Since the pool has an annual yield of 6 percent, the monthly yield is 6% / 12 = 0.5%. Therefore, the first monthly payment on the IO strip would be:

$50 million * 0.5% = $250,000.

Therefore, the answer is choice C.

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