FRM Part I · FRM Exam Part I · Mortgages and Mortgage-Backed Securities
An analyst observes that a pool of 30-year fixed-rate mortgages with a 5% coupon is prepaying at a speed of 150 PSA. In the month the pool is 10 months old, what is the CPR assumed under this speed, given the standard 100 PSA benchmark ramps 0.2% per month up to 6% at month 30?
The CPR is 3.0%. Under the 100 PSA benchmark, CPR at month 10 is 0.2% times 10, or 2.0%. A 150 PSA speed scales this by 1.5, giving 3.0%. Using 2.0% would ignore the speed multiplier.
- A3.0%Correct
- B2.0%
- C0.3%
- D6.0%
Explanation
100 PSA CPR at month 10 = 0.2% x 10 = 2.0%. At 150 PSA the CPR is 1.5 x 2.0% = 3.0%. The 2.0% figure is the 100 PSA value, ignoring the speed multiplier.
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