Question

Consider a $400 million pass-through MBS that has just been created (so the 'seasoning' of the pass-through is equal to 0). The underlying pool of mortgages each has a maturity of 20 years and an annual mortgage coupon rate of 6%. The pass-through rate of the mortgage pool is 5%. Assuming a prepayment multiplier of 100 PSA, what is the total amount of interest paid to the pass-through investors?

Answer 1

The exact total amount of interest paid to pass-through investors in an MBS with a 100 PSA prepayment multiplier cannot be calculated without specific information about payment timing and prepayment rates over the 20-year term.

Step-by-step explanation:

The question concerns calculating the total amount of interest paid to investors in a $400 million pass-through Mortgage-Backed Security (MBS) with a 100 PSA prepayment multiplier. Due to the complexity of MBS and prepayment scenarios, which involve advanced financial calculations and assumptions beyond a simple formula, and given the lack of specific timing of payments in the question, we cannot provide an exact figure without additional information. However, under normal circumstances, the total interest paid to pass-through investors would depend on the rate at which the underlying mortgages prepay over the entire term of 20 years, which would likely result in varying payment amounts each period.