Reference no: EM132270456
What numbers are true about the SDA default model:
1. Under the 100% SDA assumption no one defaults when their mortgage is a few months away from being paid out
2. If you know the beginning pool balance and assume a 200% SDA, you can figure out what the CDR is for each month
3. SDA function for defaults takes the same shape as a PSA function for prepayments
4. SDA stands for Standard Default Assumption
5. If you know the beginning pool balance and assume a 200% SDA, you can figure out what the CDX is for each month
6. The SDA takes into account maturity of the mortgage
Mark all the true statements about CMOs:
1. CMOs are a subset of MBS
2. CMO can have several classes (tranches) of securities backed by the same pool of mortgages
3. In a sequential pay CMO with an A, B and Z tranche, all tranches get their interest payments in the first month except for Z-bonds
4. In a sequential pay CMO, the tranche that gets paid last assumes the least default risk
5. In a sequential pay CMO, the tranche that gets paid off first is protected against con- traction risk
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Psa function for prepayments
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