Schweser practice exam vol 1, Exam 1 Afternoon Session Q109 Determind the single month mortality rate for MBS-X for month 20 using 200PSA. Solution says step 1) find the appropriate CPR by using 6%*(20/30)*2 but where does 6% and 30(denominator) come from? Thanks.
it given in the CFAI book something like after month 30 CPR is 6 below 30 months CPR is a fraction of the 6. just check in the book its just a few lienes where they talk about this
CPR is .2% per month up to 30 months, where its at its max 200 is the PSA
This is the stuff that is “must know” CPR is an annual rate 100PSA is standard - at 100PSA, CPR=.2% per month for up to 30 months. After 30 months CPR increases to 6% per month until maturity And these are the calculations: CPR for month 20 will be 20*.002=.04 this is 100PSA for month 20 200 PSA would be 2*.04=.08
forgot SMM… SMM=1-(1-CPR)^1/12 SMM=1-(1-.08)^1/12 SMM= 0.00692 hope that’s the answer…
Is it true that regardless of the maturity years, CPR is always .2% per month up to 30 months, where its at its max ?
Yes CPR is just a general statement for yearly prepayments. You will normally be given a PSA which you multiply the the CPR by and plug into the the formula slorte listed above