A FIXED-INCOME PORTFOLIO MANAGER PURCHASES A SEASONED 5.5% AGENCY...
18.
A fixed-income portfolio manager purchases a seasoned 5.5% agency mortgage-backed security with a
weighted average loan age of 60 months. The current balance on the loans is USD 20 million, and the condi-
tional prepayment rate is assumed to be constant at 0.4% per year. Which of the following is closest to the
expected principal prepayment this month?
a.
USD 1,000
b.
USD 7,000
c.
USD 10,000
d.
USD 70,000