P2.T5.112. Cash flow yield of mortgage backed security (MBS)

Discussion in 'Today's Daily Questions' started by David Harper CFA FRM, Feb 9, 2012.

  1. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test) Staff Member

    AIM: Calculate the static cash flow yield of a MBS using bond equivalent yield (BEY) and determine the associated nominal spread.

    Questions:

    112.1. If the bond-equivalent yield (BEY) of a mortgage-backed security (MBS) is 4.40%, what is the cash flow yield (a.k.a., mortgage yield)?

    a. 3.98%
    b. 4.36%
    c. 4.40%
    d. 4.44%

    112.2. Assume the bond-equivalent (i.e., semi-annual) yield of the seven and 10-year Treasury securities are, respectively, 4.0% and 5.2%. The bond-equivalent for an mortgage-backed security (MBS) is 5.40%. The average life of the MBS is nine (9) years. Which is nearest to the nominal spread?

    a. 20 basis points
    b. 54 basis points
    c. 60 basis points
    d. 140 basis points

    112.3. A pass-through mortgage-backed security (MBS) has a weighted average life of 15.0 years and a current price of $10 million. The balance fully amortizes with monthly payment of $95,000. Unrealistically, only to make the yield easy to retrieve, we assume no prepaid principal reduction; i.e., scheduled principal due to amortization is the only source of principal reduction. The bond-equivalent yields of, respectively the 10- and 20-year Treasury bonds are 2.0% and 2.8%. What is the nominal spread on the MBS?

    a. 4.94%
    b. 5.13%
    c. 5.50%
    d. 5.96%

    Answers:
     
  2. Luka Kublashvili

    Luka Kublashvili New Member

    Hi David,

    I cannot see answers in forum.

    Luka
     
  3. Nicole Seaman

    Nicole Seaman Administrator Staff Member

    Hello @Luka Kublashvili,

    The answers to the practice questions are located in the lower portion of the forum, which is for paid members only. To gain access to the full forum, you would need to purchase one of our study packages, which are located HERE. Please let me know if you have any questions.

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  4. marlonlstewart

    marlonlstewart New Member

    Do you have any free material that I could use as a sample?
     
  5. Nicole Seaman

    Nicole Seaman Administrator Staff Member

    Hello @marlonlstewart

    If you are not a paid member, you can see samples of the published materials in the Study Planner. We also have videos on our YouTube page that have a explain some of the FRM concepts. However, our paid materials are very detailed and David goes into depth much more. You can view all of our packages HERE if you would like to purchase study materials.

    Thank you,

    Nicole
     
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  6. Luka Kublashvili

    Luka Kublashvili New Member

    Hi @marlonlstewart,

    I have professional package for both part I and II but still cannot see the answers in the forum. I am signed in.

    Luka
     
  7. Nicole Seaman

    Nicole Seaman Administrator Staff Member

    Hello @Luka Kublashvili

    Did you receive a confirmation email after your purchase? I am not seeing any purchases made on your account, and this is why you do not have access to the full forum. Please email me directly at nicole@bionicturtle.com with a copy of your purchase confirmation so we can get this fixed for you. If you did not receive a purchase confirmation, it means that your purchase did not go through.

    Thank you,

    Nicole
     
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