- CFA Exams
- CFA Exam: Level I 2021
- Study Session 14. Fixed Income (1)
- Reading 45. Introduction to Asset-Backed Securities
- Subject 4. Mortgage Pass-Through Securities

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**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 :( |