Mock Exam Typo OR I'm missing something

CFA Level II
#1

Included mock exam 2, afternoon session, block 9:

The securities, which are not yet issued, will be backed by a pool that currently contains $117.54 million of US 30-year residential mortgages. The pool has a weighted average coupon (WAC) of 4.80% and a weighted average maturity (WAM) of 243 months, which implies 17 months of seasoning.

If the pool is 30 years (360 months) and the WAM is 243, isn’t the the pool seasoned 117 months NOT 17 months? Turns out not to affect the questions if you use the stated 17 months but I thought loan maturity - WAM = n where n is the seasoning (and is used in the CPR equation as a function of PSA).

#2

definitely a typo. I solved assuming they meant WAM of 343 (17 months of seasoning, as stated) … can’t remember if that’s right.

#3

The type of mortgages are 30 year mortgages, doesn’t necessarily mean that there is exactly that much time remaining to maturity on each mortgage (though they certainly started out that way).

#4

Did this throw of anyone for the question about the highest prepayment estimates (SMM, CPR, and PSA)?

According to the solution, they used 17 months of seasoning but if they had used 117 months it would (obviously) completely changed the answer.

#5

didn’t throw me off, however the fact that the 0.2% formula for PSA calculates CPR and not SMM threw me off. forgot that you had to do an extra calculation to convert the CPR to SMM to truly compare them :frowning:

#6

I just finished an article on CPR, SMM, and PSA that might prove helpful: http://financialexamhelp123.com/cpr-vs-smm-vs-psa/.

#7

in the same item set, I don’t understand where we know that interest payment is 0.4%?

I understand the total Payment (Principal & Interest) is calculated by taking the opening balance x WAC/12, but how do we know the interest ?

#8

int rate= wac/12= 4.8%/12=0.4%

int pmt=monthly pmt * int rate

You have to use financial calclator to calc monthly pmt. I don’t think the answer explains this very well.

#9

got it thanks!