CFA Practice Question

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CFA Practice Question

The prepayment rate for a particular mortgage pool is expected to be 225 PSA. Which of the following would best estimate this pool's single monthly mortality rate (SMM) for the 15th month?

A. 0.361%
B. 0.581%
C. 0.924%
Correct Answer: B

100PSA for the 15th month results in a conditional prepayment rate (CPR) of CPR15 = 0.06 x (15/30) = 0.03

The equivalent CPR for 225 PSA: (2.25)CPR15) = 2.25 x 0.03 = 0.0675

The respective SMM15 = 1 - (1 - 0.0675)1/12 = 0.0581%

User Contributed Comments 1

User Comment
maryprz14 I do not remember the notes saying anything about this magic 6% or the t/30?
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