- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 19. Mortgage-Backed Security (MBS) Instrument and Market Features
- Subject 3. Residential Mortgage-Backed Securities
CFA Practice Question
Using the Public Securities Association Prepayment benchmark, calculate CPR and SMM.
Correct Answer: 1.8% and 0.1513%
CPR = 90/100 x 6% x 10/30 = 1.8%
SMM = 1 - (1 - CPR)1/12 = 1 - (1 - 0.018)1/12 = 0.1513%
User Contributed Comments 6
| User | Comment |
|---|---|
| danlan2 | Using PSA benchmark, CPR = 6%*t/30 When PSA=90, CPR=0.9*0.06*10/30=1.8% |
| pb09 | where'd we get 6% and 10/30 from?? |
| bodduna | If t<30, cpr = 6%*t/30, If t>30, cpr = 6%. It is a standard |
| Catalin92 | This came from nowhere... |
| khalifa92 | yeah and there's no emphasize about it in the book. just 3 lines. |
| Ewan2015 | odduna: Thank you for explaining that. Better than the summary that makes no mention of that standard :( |