1.Read the BofA piece “Residential Mortgages: Prepayments and Prepayment Modeling.”As described in the Bof A piece and on pages 653-654 of your textbook, prepayments that are sensitive to changes in interest rates pose problems for MPT investors.In turn, investors require a higher yield (i.e., a lower price) for the pass-through.Read through the BofA piece and comment on which type of prepayments are sensitive to interest rates and in what way they are sensitive to interest rates.Can you think of any other ways not mentioned in the piece that interest rates could affect prepayments.In which direction would the effect be?

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2. Select a few REITs from a list of top REITs such as:


You can use Yahoo Finance or some other source to look at summarized versions of the REIT’s financial statements.For example, here is the income statement for AJX – Great Ajax Corporation:


Using what you learned reading Chapter 21, Select a single REIT that you would recommend as an investment.Defend your recommendation.How does your REIT compare to the REIT from Problem 1?Look at the REITs your classmates selected.Can you convince them to invest in your pick instead?Use the discussion thread to try to do this.

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