26-100 What is the present value of the mortgage pass?through if,immediately after origination,interest rates increase to 8.25 percent per annum?
A)$15,000,000.
B)$14,650,591.
C)$14,000,000.
D)$15,115,493.
E)$15,267,549.

Question

Quizplus · Accepted Answer

To calculate the present value of the mortgage pass-through, we need to discount the cash flows using the rate at which we want to bring them back to the present. In this case, the mortgage pass-through cash flows are based on a 7.75% annual interest rate, but we need to discount them using an 8.25% annual interest rate. The present value of the mortgage pass-through is therefore the sum of the present values of each cash flow. Using a financial calculator, we get a present value of $14,650,591, which is closest to choice B.

26-100 What Is the Present Value of the Mortgage Pass?through