CPR Calculation Question

CFA Level II
#1

Reading 57: Mortgage Backed Securities Page 57 Problem 6 How does the author derive the CPR figure from the PSA? Thanks.

#2

Figured it out. CPR = (Month * .2%) to a max of 6% * (PSA/100)

#3

easier way than remembering that formula: 2% per month, for say 12 months= 2.4%, and say we are using 150 PSA, then just 2.4*1.5= 3.6%

#4

^ if thats how you guys do math up in Boston I am going to your local bank to get a loan at 2% per month and end up paying 2.4% a year lol, fag

#5

three general formulas used for CPR CPR = 6% x n/30 x (PSA/100) n = number of months left to maturity CPR = 1 - (1 - SMM) power 12 SMM = Prep / (outstanding balance + interest - payment ) correct me if im wrong thanks

#6

^ SMM = Prep / (outstanding balance + interest - payment ) well, given that prepayments= (outstanding balance-scheduled payments)*SMM i am pretty sure the interest is not involved here and the formula would rearrange to SMM=pre/(outstanding-schedualed)

#7

gulf is right gulf is right gulf is right

#8

^Officer on deck

#9

lol ya i kept it in regular percentages to avoid confusion…you will still get the right answer. Or you could just do it the correct way. Easier to remember though. gulfcfa Wrote: ------------------------------------------------------- > ^ if thats how you guys do math up in Boston I am > going to your local bank to get a loan at 2% per > month and end up paying 2.4% a year > > lol, fag

#10

gulfcfa Wrote: ------------------------------------------------------- > ^ > > SMM = Prep / (outstanding balance + interest - > payment ) > > > well, given that prepayments= (outstanding > balance-scheduled payments)*SMM > > i am pretty sure the interest is not involved > here > > and the formula would rearrange to > > SMM=pre/(outstanding-schedualed)t > well, given that prepayments= (outstanding > balance-scheduled payments)*SMM < - - Prepayments = (outstanding balance - scheduled principal )xSMM Refer to 2010 Mock Exam Afternoon session question 14. :slight_smile: Scheduled Principal = Mortgage payment - Interest So it’s the same formula i wrote above.

#11

Let me draw your attention on this point: Beware when the pool of loans is seasoned so as to adjust the PSA calculation.

#12

sure bilal, i thought by payment you ment schedualed principle payment no mistake on your side, just a wrrong assumption on mine :slight_smile:

#13

gulfcfa, are you from the gcc region?