Question

1. In a treasury notes auction, the final high yield will be ________ if the total amount issued is 2.5 billion and the bids submitted are the following:

Total amount (in thousands)	Bid number	Bid amount (in thousands)	bid yield
2,500,000	1	500,000	2.50%
	2	1,000,000	3.50%
	3	100,000	4.25%
	4	1,500,000	3.70%

	a.	3.7%
	b.	4.25%
	c.	2.5%
	d.	3.5%

2.

1. Suppose that a pool of mortgage has a Weighted Average Coupon (WAC) of 8%, Pass-Through (PT) rate the 6.5%, Weighted Average Maturity (WAM) is 340 months (namely, it is month 20 right now), with outstanding balance $100,000.

1. Assume 125 PSA, Calculate the CPR and SMM for month 20.
2. Calculate the scheduled total payment, interest payment and scheduled principal payment for month 20
3. Using the result of part 1), calculate the prepayment predicted by 125 PSA

4) What is the total cash flow to the Pass-through holder?

Answer 1

As per the guidelines stated, I am supposed to answer only one (first question). You need to post the rest to get solved.

First, that bids will be accepted which gives higher yield

Bid number 3 will first accepted since, it is giving highest yield i.e., 4.25% (Amount $100,000)

Bid number 4 will be next accepted, it is giving higher yield i.e., 3.70% (Amount $1,500,000)

Bid number 2 will be next and final accepted, it is giving higher yield i.e., 3.50%

Answer is d option having 3.5%