ABC Bank originated a pool of containing 10 three-year fixed-rate mortgages with loan amount of $ 100,000 each. All mortgages in the pool carry a rate of 6% with annual payments. The guarantee and servicing fee is 1%. ABC Bank would like to sell the pool to investors via Mortgage Pass Through ( MPT) security. Suppose that 100,000 shares will be issued and there are no prepayment and no default for the borrowers. If market interest rate is 5.5%, what is the price for each MPT security? PLEASE SOLVE USING EXCEL AND SHOW FORMULAS AND STEPS AND THE ANSWERS. THANK YOU
Q: You are considering two insurance settlement offers. The first offer includes annual payments of…
A: Given information, Annual payment (PMT) = $45,000Number of periods (n) = 12 yearsDiscount rate (r) =…
Q: Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of…
A: 1. Factors Affecting Weighted Average Cost of Capital (WACC):a. Interest rates in the economy: The…
Q: None
A: Total enterprise value (TEV) is a valuation measurement used to compare companies with varying…
Q: To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Water…
A: A company's cost of debt is the weighted average of all oustanding bonds issued. When reporting cost…
Q: Multiple IRRs arise when considering projects with non-normal cash flows with normal cash flows with…
A: Multiple Internal Rates of Return (IRR) can arise when considering projects with non-normal cash…
Q: Question 15 of 30 View Policies Current Attempt in Progress -/0.35 ⠀ Carla Vista Corporation is…
A: Step 1: The calculation of the NPV and The IRR AB1Equipment cost $ 1,856,000.00 2Cashflow $…
Q: Problem 18-10 Calculating Net Pay and Spendable Income [LO18-6] Assume your gross pay per pay period…
A: Here's the corrected calculation of taxable pay and spendable income for the given…
Q: Using the data in the following table, calculate the return for investing in this stock from January…
A: Step 1:January 1 to March 31:Return, r1 = (Price, Mar. 31 + Dividend - Price, Jan. 1) / Price, Jan.…
Q: IRR A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7…
A: Step 1:We have to calculate the internal rate of return of the project.We will use the IRR function…
Q: ABC Inc is considering a project that will generate perpetual cash flows of $15,000 per year…
A: Step 1: Calculate the weighted average cost of capital (WACC). Debt ratio = D/(D+E) = 0.8/(0.8+1) =…
Q: 15. Mortgage Loan - Total Expenses. Refer to the mortgage payment that you calculated above. The…
A: To calculate the total monthly expenses for the couple, we need to consider various additional…
Q: 1. Suppose two factors are identified for the U.S. economy: the growth rate of industrial…
A: Here's how to calculate the best guess for the rate of return on the stock:Expected Contribution…
Q: Tori just purchased some equipment that belongs in a 35% CCA class. The equipment cost $167,400.…
A: Given:Equipment cost (original UCC): $167,400CCA class: 35% (declining balance method)Year…
Q: Problem 11-36 SML Suppose you observe the following situation: State of Economy Bust Normal Boom…
A: Compute the expected return and expected market risk premium:Formulas:
Q: Preferred stock is a hybrid security, because it has some characteristics typical of debt and others…
A: Step 1:Identify characteristics of preferred stock:Dividends are fixed: This characteristic is…
Q: For the Restaurant Sales database,:(a) Obtain the Min and Max amount in sales(b) For each Bin shown…
A: The relationship between sales amounts and their related frequencies is shown in the following plot…
Q: If returns of S&P 500 stocks are normally distributed, what range of returns would you expect to see…
A: Step 1: Step 2: Step 3: Step 4:
Q: None
A: aCost of acquisition = (Purchase price * Shares outstanding) + LiabilitiesCost of acquisition = (63…
Q: A stock is expected to pay a year-end dividend of $2.00, i.e., D₁ = $2.00. The dividend is expected…
A: To answer:A contract's acceptance or rejection is contingent upon the discount rate that is applied…
Q: Suppose there are two independent economic factors, M₁ and M2. The risk-free rate is 7%, and all…
A: To find the expected return-beta relationship, we can use the Capital Asset Pricing Model…
Q: Bhupatbhai
A: Part 2: Explanation:Step 1: Calculate the initial investment:Initial investment = Research costs +…
Q: Saved Modern Artifacts can produce keepsakes that will be sold for $60 each. Nondepreciation fixed…
A: Understanding Break-Even Levels:Accounting Break-Even: The point at which total revenue equals total…
Q: Company A has a beta of 0.60, while Company B's beta is 1.70. The required return on the stock…
A: Step 1: To calculate the required rate of return for Company A and Company B, you can use the…
Q: Question 25 What is the correlation between Stock 1 and Stock 2's returns? Expected Return…
A: Summarizing the data of Stock 1 and Stock 2:Stock 1: 0.81, 0.19, -0.50Stock 2: 0.02, -0.06, -0.28…
Q: Nikul
A: 1. All-Equity Plan:Number of shares under the all-equity plan is given as 32,000.2. Plan I:Number of…
Q: Calculating Bond Issuance Prices Presented below are annual coupon rates, yield rates, and expected…
A: Using this information, we can calculate the issuance prices for each debenture as follows:A:Coupon…
Q: Baghiben
A: Cash Flow Analysis for The Ultimate Tennis Racket ProjectYear 0Cash Outflow: Initial Investment -…
Q: How do I fill in this table?
A: The table you provided appears to be a financial model with a terminal value for a company. Let's…
Q: Vijay
A: Calculating Jamal's IRA BalanceWe can calculate the future value of Jamal's IRA using the Future…
Q: Sky is a single parent of a 1 year old daughter, Becky. She has an annual income of $45,000. Sky…
A: The CESG is a government grant that supplements the contributions made to an RESP. The amount of the…
Q: The partnership agreement of the G&P general partnership states that Gary will receive a…
A: REQUIREMENT a ( 1 ) Total amount Allocated to GarySales revenue $ 83200 LESS : Cost of goods…
Q: Mail Solicitation Home Equity Loan: Is This a Good Deal? Discover offers a home equity line of…
A: Loan Balance After 10 Years (Question 1)Your answer is correct. The remaining balance after 10 years…
Q: The University of Cincinnati Center for Business Analytics is an outreach center that collaborates…
A: (a) Building the Spreadsheet ModelAssumptions:10 corporate membersEach member receives 14 free…
Q: 6. Equilibrium pricing: Let the subscripts: j = 0 denote the risk-free asset, j = 1,...,n the set of…
A: c. Expected Return using CAPM (Example):Given:Beta (B) = 0.8 (replace B with βj for the specific…
Q: Which measures the liquidity ratio of firms? a. Earnings per share b. Net profit margin Oc. Return…
A: Option a: This option is incorrect because earnings per share (EPS) is a measure of profitability,…
Q: Raghubhai
A: The cash flows for each year in detail. 1. Year 0 (Initial Investment): - The company will invest…
Q: 2) First, calculate the payback period and NPV for all projects below. For all the projects, the…
A: Step 1: Compute for the payback period of eachThe payback period is the length of time it takes to…
Q: is this accurate
A: Here is the explanation. It is essential to make use of either the equivalent annuity approach (EAA)…
Q: You are evaluating two different silicon wafer milling machines. The Techron | costs $265,000, has a…
A: Calculate Annuity Factor (A/F) for Machine Life at 10% discount rate.A/F = 1 - (1 + R)^-N / R (where…
Q: Nikul
A: Calculating Operating Cash Flow under Best-Case ScenarioHere's how to find the operating cash flow…
Q: 14 ants eBook Print References Triad Corporation has established a joint venture with Tobacco Road…
A: Step 1: Determine the Earnings after tax . Earnings after tax is Earnings before Interest Taxes and…
Q: ! Required information Section Break (8-11) [The following information applies to the questions…
A: Step 1:The shape ratio of the best feasible Capital Allocation Line (CAL) can be calculated using…
Q: Quantitative Problem: Currently, Meyers Manufacturing Enterprises (MME) has a capital structure…
A: c. To calculate MME's unlevered beta (bu), we can use the formula for unlevered beta:bu = Beta / (1…
Q: Using the data in the following table, , calculate the return for investing in this stock from…
A: Absolutely, I can help you calculate the return on investment for this stock.Here's how to calculate…
Q: 19 You run a regression for a stock's return on a market index and find the following Excel output:…
A: Step: 1 The R-Square value of the regression output indicates the proportion of the variance in the…
Q: Suppose you are evaluating a project with the expected future cash inflows shown in the following…
A: Note: Initial Investment is calculated as = Cash Flow in year 1+ Cash Flow in year 2 + Cash flow in…
Q: Answer in all part
A: Step 1: The potential big advantage for a firm to acquire another firm that makes a similar product…
Q: Assume a project has normal cash flows. All else equal, which of the following statements is…
A: The Net Present Value (NPV) is a key measure used to evaluate the profitability of an investment…
Q: A bond that pays interest of 8% semiannually has a par value of $1,000, matures in 10 years, and is…
A: Step 1: Given Value for Calculation Compound = Semiannually = 2Semiannually Coupon Rate = c = 8 / 2…
Q: Please Give Step by Step Solution Otherwise i give you DISLIKE !!
A: Answer image:
Step by step
Solved in 2 steps
- An investor is considering the purchase of either an IO or PO strip from a CMO offering. The portion of the mortgage pool backing this tranche consists of $1,000,000 in mortgages with a remaining maturity of 10 years and an 8 percent interest rate.a. Assuming annual payments and a zero prepayment rate, prepare a schedule showing the IO and PO cash flows that would be payable to investors in this tranche. If the interest rate demanded by investors on this investment is also 8 percent, what would be the prices of the IO and PO strips?b. If interest rates increased to 10 percent and prepayments remained at a zero rate, how would the price of the IO and PO strips change? Which security, the IO or PO, exhibits the greatest price change from (a)? Why?c. Investor interest rates now decline to 6 percent. What is the price of the IO? PO? Prepayments now increase to a rate of 20 percent per year because mortgage borrowers in the pool begin to refinance at lower interest rates. What would prices…A customer asks a bank if it would be willing to commit to making the customer a one-year loan at an interest rate of 6.5% two years from now. To compensate for the costs of making the loan, the bank needs to charge two percentage points more than the expected interest rate on a Treasury bond with the same maturity if it is to make a profit. The bank estimates the liquidity (term) premium for one-, two-, and three-year bond to be 0%, 0.5%, and 1%, respectively. According to the Treasury yield curve below, what interest rate the loan must charge in order for the bank to make a profit on the loan? Should the manager be willing to make the commitment? Choose the closest answer below. Spot rate 6% 5% 4% Term 1-year 2-year 3-year O 7%; Yes O 8%; No O 5%: Yes O 6%; Yes O 7%; NoThe MZ Mortgage Company is issuing a CMO with three tranches. The A tranche will consist of $40.5 million with a coupon of 8.25 percent. The B tranche will be issued with a coupon of 9.0 percent and a principal of $22.5 million. The Z tranche will carry a coupon of 10.0 percent with a principal of $45 million. The mortgages backing the security issue were originated at a fixed rate of 10 percent with a maturity of 10 years (annual payments). The issue will be overcollateralized by $4.5 million, and the issuer will receive all net cash flows after priority payments are made to each class of securities. Priority payments will be made to the class A tranche and will include the promised coupon, all amortization from the mortgage pool, and interest that will be accrued to the Z class until the principal of $40.5 million due to the A tranche is repaid. The B class securities will receive interest-only payments until the A-class is repaid and then will receive priority payments of…
- What is a “balanced portfolio” ? What kind of account allows people to invest small amounts of money into a large, professionally managed, balanced portfolio? Jack Abrams borrowed $8,000 for nine months at an interest rate of 7% (simple interest). The bank also charges a $100 processing fee. What is the actual interest rate for this loan? On September 30, 2019, Stinky Bank issued 10-year bonds at an annual simple interest rate of 4.25%, with interest paid twice a year. Pepe le Pew purchases a $10,000 bond. How much interest will Pepe earn every six months? How much interest will he earn over the 10-year life of the bond? Charlie Brown, a 25-year-old professional, invests $200 a month in the XYZ Capital Opportunity Fund, which has a 10-year average return of 8.75%. Charlie wants to estimate what he will have for retirement when he Is 60 years old if the rate stays constant. Assume monthly compounding. If Charlie makes no further deposits and makes no withdrawals after…Third Mortgage Investors makes money by purchasing mortgage backed securities (MBS), stripping them into interest only (IO) and principal only (PO) components, and selling the components for more than it paid for the original security. Suppose the company purchases a $100,000 Face value MBS carrying a coupon of 9 percent and a maturity of 30 years. Assume for the purpose of the following analysis, the MBS will make payments on an “ANNUAL BASIS.” What is the remaining principal balance on the MBS if it survives 1-year? 3-years? 5 years? 8 years?Third Mortgage Investors makes money by purchasing mortgage backed securities (MBS), stripping them into interest only (IO) and principal only (PO) components, and selling the components for more than it paid for the original security. Suppose the company purchases a $100,000 Face value MBS carrying a coupon of 9 percent and a maturity of 30 years. Assume for the purpose of the following analysis, the MBS will make payments on an “ANNUAL BASIS.” 1) What is the annual payment on the MBS
- A commercial bank invests in a loan with a current market value of $600,000 and a maturity of 3 years. The bank partially funds the loan by issuing a zero coupon bond with a maturity (principal) value of $450,000 and a duration of 3 years. The current market rate is 7% and interest rates are expected to increase by 1%. Which of the following statements is true? (a) The current equity value of the position is $150,000 and if interest rates increase the equity value will increase. (b) The current equity value of the position is $232,666 and if interest rates increase the equity value will increase. (c) The current equity value of the position is $232,666 and if interest rates increase the equity value will decrease. (d) The current equity value of the position is $150,000 and if interest rates increase the equity value will remain the same. (e) None of the given answers. The current equity value of the position is $232,666 and if interest rates increase the equity value will remain the…A client deposits 150,000 in a bank, with the bank agreeing to pay 6% annual effective for three years. The client indicates that one third of the account balance will be withdrawn at the end of the first year and half of the account balance will be withdrawn at the end of the second year. The bank can invest in either one year or three year zero coupon bonds. The one year bonds yield 7% and the three year bonds yield 10%. Develop an investment program based on immunization.Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $31,950,000, with the promise to buy them back at a price of $32,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) a. b. X Answer is complete but not entirely correct. Yield on the repo Yield on the repo 1.02857 % 0.34286 %
- Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) Yield on the repo a. % b. Yield on the repoA CMO is being issued with 2 tranches and a residual (same set-up as the previous question): • Tranche A has 6,000,000 in principal and a 4.50% coupon. • Tranche B has 5,000,000 in principal and a 5.00% coupon. The mortgages backing the security issued are FRM at a mortgage rate of 5.10% with 10 year maturities and annual payments. There is no guarantee/servicer fee. Prepayment is assumed to be 5% CPR. The residual owns no principal at origination. What is the starting pool balance for Tranche A investors in year 27 (Note: same as the ending pool balance for Tranche A investors in year 1) O 4,579,523.44 O 6,180,341.21 O 5,075,948,54 O 5,760,753.01 QUESTION 11 Suppose you're an investor that's looking to earn the highest absolute profit / return and not very concerned about risk of loss or ongoing cash flows. Which type of CMO would you be most interested in owning? O Tranche A O Tranche Z O Companion tranche of a PAC O Inverse Floater ClassBroadStreet Bank has just been given a $10,000,000, 5 year CD deposit by the local municipality. The bank has agreed to pay 8%, compounded annually on this deposit. The bank wishes to choose one debt investment to cover this deposit, so that they have earnings from this investment to just cover the interest and CD principal when it comes due in 5 years. They are looking at the following 3 possibilities for investment: Bond Maturity Coupon YTM Duration1 5 0.00% 8.00% 5.002 6 7.90% 8.00% 5.003 7 17.15% 8.00% 5.00 • Show that each of three investment will cover the future payout required by the CD, even if market rates increase or drop by ½ % by the end of 5 years