The underlying GNMA 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?
A)$3,000,000.
B)$421,928.
C)$250,000.
D)$299,775.
E)$171,928.

Question

Quizplus · Accepted Answer

To calculate the first monthly payment on the IO strip, we need to calculate the interest payment on the underlying mortgage pool. The annual interest payment on the pool is:
$50,000,000 x 6% = $3,000,000
Dividing this by 12 (for the 12 months in a year) gives us the monthly interest payment:
$3,000,000 ÷ 12 = $250,000
Therefore, the first monthly payment on the IO strip would also be $250,000. Choice C is the correct answer.

The Underlying GNMA 15-Year Mortgage Pool Has a Principal Amount