Question

A pool of mortgages contains 3.75%, 30-year loans with the total beginning balance of $100 million. The pool backs 75 principal-only (PO) shares and 97 interest-only (IO) shares. Monthly expenses and fees amount to 0.04% of the beginning-of-the-month balance (they are subtracted from the interest portion). In the first month, the total payments from the pool were $461.7 thousand. What was the cash flow per IO share (to the nearest dollar)? Assume no defaults.

Answer 1

Answer
Cash Flow
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Pool	10,00,00,000
Total Payment	4,61,700
Interest	3.75%	Annual
	0.31	Per Month
Interest Component	Begin Principal * 0.31%
	= $10,00,00,000 * 0.31%
	3,10,000
Principal Received	$ 4,61,700 - $3,10,000
	1,51,700
Monthly expenses	0.04% of Begin principal
	40,000
Interest component (post monthly expenses)	= $3,10,000 - $40,000
	2,70,000
Interest attributable to IO Shares holder	2,70,000
Total IO Shares	97
Total PO Shares	75
Payment per IO Share	= 2,70 000/97	$          2,784
Payment Per PO Share	= 1,51,700/75	$          2,023

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