CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Assume that an outstanding loan is $300,000. The scheduled principal and interest payments are $1,000 and $3,000. If the actual payments in the first month are $8,000, what is the SMM?
A. 1.28%
B. 1.34%
C. 1.48%
Explanation: SMM = (8,000 - 3,000 - 1,000)/(300,000 - 1,000) = 1.34%. This means that 1.34% of the month's scheduled principal balance has been prepaid.

User Contributed Comments 3

User Comment
bscotty Is answer correct? Shouldn't interest be left out of it and the right equation be SMM = Prepayment/(Mortgage balance beginning of month - Scheduled Principal payment)?
droko bscotty: you want to get prepayment so you take out scheduled principal AND interest. It is correct.
tomalot No need to calculate this for level 1 I think?
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