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