Reference no: EM132074370

(a) Create a dollar roll matrix of breakeven rates for an agency MBS with gross and deal coupons of 8.035% and 7.5%, respectively, and settlement dates 6/14/18 and 8/15/18. Assume standard fully amortizing fixed rate mortgages with a term of 30:0, a WAM of 29:5 and an immediate price of 96-16. MBS CF’s are due the owner of record on the first of each month, but are paid on the 25^th of that month. Assume standard PSA benchmarks.

The spreadsheet should correctly calculate the dollar advantage for any input above (though only for a two-month roll - not 1, or 3 or more). I do suggest you try to recreate the 1 month dollar roll in the lecture pdfs first, to get a feel for how it’s done (andCalculate the breakeven matrix for PSAs of 120, 150, and 180, and forward drops of -40, -35, and -30 (32’s) for the inputs listed in the first paragraph (these, or course, will be fixed numbers).

You can submit this “test run” on a separate worksheet along with your 2-month answer for partial credit if warranted). Do not hardcode inputs in formulae, e.g., rates/coupons, dates, terms or WAMs, prices, reinvestment rates (though you can stick to act/360), balances, PSA, etc.

Hand in your dollar roll for a forward drop of 35/32, a PSA of 150, and a reinvestment rate of 2% (though, of course, I should be able to change these and get the right dollar advantage).