# BSAS 2012 Level 2 CFA exam QUESTION 47 AM SESSION

Any of you fine people have any comments on this:

In Q47, the BSAS solution calculated the CPR for a mortgage that is 48 months into a 60 month term under 175 PSA as:

CPR = (24/30)*6.0%*1.75

I’m all good with this except for this 24/30 factor, where the hell did this come from?

Cheers

N

24/30=48months/60months

Yes thanks, I realize the equivalence there.

I should clarify. Why are they adjusting the CPR by that factor though? I have not seen this anywhere else…are you supposed to reduce the CPR by a factor related to its seasoning?

IE: should 175 PSA for a 48 month mortgage just not be 1.75*0.06% ?

thanks

it’s 0.2% per month up to 30 months (6%) max, then adjust for PSA

in the question it states that the mortgate was issued 2 years ago (24 months)

not sure where you are getting 48 months.

100% PSA is a model that = 6% CPR in 30 months. it starts at zero and grows 2% per month.

at month 30, 100 PSA = 6 CPR

in month 20, SMM = .0043

CPR = 1-(1-SMM)^12

month 20 CPR = 5.3

100 PSA% of model in month 20 would be .2*20 = 4 CPR

CPR of 5.3 >4, so you can intuitlively see it should be greater than 100%

5.3/4 = 1.25 , that is close to the answer, i forget the exact numbers.

I’m cracked…sorry guys, I don’t know why I thought it was 48 of 60 months…this was the last question I did before quitting yesterday, in the cold light of morning I see clearly.

Thanks and good luck.

N