Explanation:
Correct Answer: C
Explanation:
C is correct. WAC and WAM are calculated by multiplying the coupon and maturity, respectively, of each mortgage in the portfolio by the weight of each mortgage to the total current value of the mortgage portfolio (expressed here in USD thousands).
A is incorrect. 3.93% is a simple average interest rate instead of a weighted average, while 292.5 months is a simple average current maturity instead of a weighted average.
B is incorrect. The simple average interest rate is used.
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A junior mortgage analyst is analyzing a USD 2 million mortgage pool consisting of four mortgages. The original principal amount of the pool was USD 2.3 million. Additional information about the mortgages is provided below:
| Mortgage | Current loan balance (USD) | Interest rate | Maturity at origination (months) | Current maturity (months) |
|---|---|---|---|---|
| Mortgage A | 350,000 | 3.60% | 360 | 340 |
| Mortgage B | 475,000 | 3.75% | 360 | 310 |
| Mortgage C | 550,000 | 4.12% | 360 | 270 |
| Mortgage D | 625,000 | 4.25% | 360 | 250 |
Which of the following are the best estimates of the weighted-average coupon (WAC) and the weighted-average maturity (WAM) of the mortgage pool?
A
WAC 3.93%; WAM 286 months
B
WAC 3.93%; WAM 293 months
C
WAC 3.98%; WAM 286 months
D
WAC 3.98%; WAM 293 months
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