Consider an MPT that is backed by 100 mortgages with average balance of $450,000 and monthly payment. The MPT has a WAC = 5% and WAM = 60 months. There is no servicing fee on this security. Assuming the prepayment model of CPR=5% and market rate is 3% (annual, investor discount rate), how much should this security sell for?

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.