MGT 329, FINAL REPORT-1

For sure, I by and large joke is that the most generally perceived request I get from
my clients is: "Don't you read the papers? In what manner may you have the
capacity to buy FRE? The CEO of FRE is a convict. We should stop for ten minutes
and return at 2:30.

Freddie Mac (FRE)

You can buy incredible business at low expenses. In any case we need to describe
what an average business is
Organization

Issue us an opportunity to examine organization. No one said organization in the

criteria for a better than average business. In light of the estimations, we would say
FRE and FNM are all that much managed because they make noteworthy yields on
worth. Wouldn't you assume that organization is making an OK demonstrating?

Is this an all that much directed business? What do you think? Old organization
worked expected to keep their positive circumstances. In a general sense, we agree
that FRE has an exceptional foundation if it can keep its foundation. FRE has an
extensive segment of the traits of a wonderful business. It is acknowledged you
would need to have this business if it was at an adequately unassuming expense.

Valuation

In what capacity may you go about regarding FRE? This is not a basic one to do
adventitiously. Especially given the accounting issues in this association. In what
manner may one center the average, practical salary power estimation of FRE?

What sort of cash is the association making? Issue us an opportunity regardless

what they do.

They buy home credits and offer them of into the business. They are buying a pool of
home advances that were begun by someone else (no starting like Countrywide
Credit- -15% of every single home advance in begin by Countrywide Credit- -which
would require an unprecedented measure of capital if they didn't package them and
offer them to associations like FRE and FNM). FRE's most prominent business:
buying home credits.

They tune in credit certification. They buy home advances and offer securities to
store those home advance purchases.

Livelihoods: The interest rate on those home credits and the charges they get. How
might you finance that home advance? FRE buys home advances and they issue
commitment to pay for those home credits -they make a spread. In case there was
no prepayment decision on the commitment and no discipline -how might you
sponsor that and not hold any peril? They issue callable commitment.

The home advance is 6% and FRE issues 5% callable commitment for a spread of
1%. In case the home credit holder pays me early, FRE gets its commitment, if the
home advance holders does not prepay, then FRE continues holding the
commitment to advancement. FRE has correctly composed its playing point rate risk.

Outside govts. will buy bonds from FNM and FRE, which allows the Government
Sponsored Entities (GSEs) a lower cost of capital. You must replicate the callable
commitment and you must model the behavior of the home advance business sector.
The resistance for FRE and FRM is beginning from the gigantic business banks (Citi,
Bank of America). Those banks take risk by playing the yield twist. The spreads are
adequately wide (yield curve is douse enough) to accept compass danger.

FNM and FRE take term risk and bungle on the astonishing tails. They fence 98% of
an interest rate move. The cost of a perfect wall would make this a normal business.

Remote govts. Buy FRE and FNM paper in light of the way that they get a higher
interest rate and there is the conviction that the US govt. will stay behind this paper
because of default by FRE and FNM.

Cutoff how a considerable measure of your portfolio you put into FRE- -so you
improve.