CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

You have invested in a mortgage pool with a $100,000 principal balance outstanding at the beginning of the 35th month. The scheduled monthly principal payment for month 35 is $300. Assuming 120 PSA, the estimated prepayment amount should be ______.
A. $619
B. $723
C. $588
Explanation: Since the pool is over 30 months old, CPR = 6% x 1.2 = 7.2%
SMM = 1 - (1 - 0.072)1/12 = 0.006208
Estimated prepayment amount = (0.006208) ($100,000 - $300) = $619

User Contributed Comments 3

User Comment
rjdelong Can anyone explain where the CPR 6% comes from?
olympria A mortgage aged more than 7 years should have CPR of 6% (given in study material/LOS) which translates to a 100 PSA.

Here, the PSA is 120 (which is 20% higher), therefore, the CPR should also be 20% higher which is 7.2%
dbalakos Can anyone explain why the annualization is done like that?
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