26-98 What is the present value of the mortgage pass?through if the entire pool is repaid after two months and there is no change in interest rates?
A)$14,989,935.
B)$15,089,868.
C)$15,000,000.
D)$15,110,065.
E)$14,889,935.

Question

Quizplus · Accepted Answer

The present value of the mortgage pass-through is equal to the total principal amount of the underlying mortgages that remain outstanding at the time of prepayment. Since the entire pool is repaid after two months and there is no change in interest rates, we can assume that all of the mortgages will be outstanding for those two months.

Using the formula: PV = C / (1 + r)^t, where C is the cash flow, r is the discount rate, and t is the time period, we can calculate the present value of the mortgages:

PV = $15,000,000 / (1 + 0)^2 = $15,000,000

Therefore, the present value of the mortgage pass-through is $15,000,000.

26-98 What Is the Present Value of the Mortgage Pass?through