### 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 Comments3

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?
You need to log in first to add your comment.