Real estate Finance

 

Concerning the market interest rate on MPT in Q1, please note that the investors have to pay current market interest rate + 1% servicing fee = 11% (=fixed interest rate), which implies the current market interest rate = net pass-through rate = 10%.

Determine the pricing function of MPT, you have to solve the net pass-through rate yourself before considering prepayment level among different ranges of interest rates; You may use equations or words to describe the pricing function, depending on your own decision.

Compare the price, You may describe the difference between the two verbally or graphically using the range of interest rate from 0%-20%, whichever you prefer. But you are NOT required to calculate an exact price of the 5-year MBB, given that the market interest rate/discount rate is not provided in the question.

Use Excel to solve the problem, though constructing cash flow tables by hand could also solve it, the stated maturities are for your reference. Any calculated/ actual maturities earlier than/ different from the stated ones are also acceptable.

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