Financial Risk Manager Part 1

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Explanation:

WAC is given by:

\text{WAC} = \sum_{i=1}^{n} w_i c_i

and WAM is given by:

\text{WAM} = \sum_{i=1}^{n} w_i L_i

Where $n$ is the number of mortgages in the pool, $c_i$ is the coupon of the $i^{\text{th}}$ mortgage, $L_i$ is the remaining life of the $i^{\text{th}}$ mortgage, and:

w_i = \frac{P_i}{\sum_{i=1}^{n} P_i}

Where $P_i$ is the remaining principal of the $i^{\text{th}}$ mortgage.

Therefore

\text{WAC} = \frac{200}{900} \times 3\% + \frac{300}{900} \times 4\% + \frac{400}{900} \times 5\% = 4.22\%

WAM in months is

\frac{200}{900} \times 220 + \frac{300}{900} \times 250 + \frac{400}{900} \times 150 = 198.89

Explanation:

WAC is given by:

\text{WAC} = \sum_{i=1}^{n} w_i c_i

and WAM is given by:

\text{WAM} = \sum_{i=1}^{n} w_i L_i

Where $n$ is the number of mortgages in the pool, $c_i$ is the coupon of the $i^{\text{th}}$ mortgage, $L_i$ is the remaining life of the $i^{\text{th}}$ mortgage, and:

w_i = \frac{P_i}{\sum_{i=1}^{n} P_i}

Where $P_i$ is the remaining principal of the $i^{\text{th}}$ mortgage.

Therefore

\text{WAC} = \frac{200}{900} \times 3\% + \frac{300}{900} \times 4\% + \frac{400}{900} \times 5\% = 4.22\%

WAM in months is

\frac{200}{900} \times 220 + \frac{300}{900} \times 250 + \frac{400}{900} \times 150 = 198.89

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Q.28 A pool of mortgages owned by Bank Y consists of the following assets:
i. USD 200,000 mortgage with 220 months to maturity and a 3% rate of interest
ii. USD 300,000 mortgage with 250 months to maturity and a 4% rate of interest
iii. USD 400,000 mortgage with 150 months to maturity and a 5% rate of interest

Determine the WAC and WAM.

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RRohit

Last updated: June 22, 2026 at 14:25

WAC=4.22%; WAM=198.89

WAC=4.00%; WAM=206.67

WAC=4.22%; WAM=206.67

WAC = 4.00%; WAM = 198.89