As noted earlier, the payment rate is the percentage of outstanding balances
paid (collected) on average monthly. Our first stress test aims to evaluate
the impact of fluctuations in the payment rate on principal amortization
and cumulative losses. To this end we stressed our base case payment rate
of 8% by 50% and 100%. The results are shown in Exhibit 7.1.
Our example reveals that payment rates are inversely related with
cumulative losses and length of amortization period. Intuitively as the
payment rate increases the time required to make the necessary principal
payments decreases and, therefore, investor’s exposure decreases as
well. Notably, with less outstanding principal exposed to time, cumulative
losses decrease. We are left to draw the conclusion
paid (collected) on average monthly. Our first stress test aims to evaluate
the impact of fluctuations in the payment rate on principal amortization
and cumulative losses. To this end we stressed our base case payment rate
of 8% by 50% and 100%. The results are shown in Exhibit 7.1.
Our example reveals that payment rates are inversely related with
cumulative losses and length of amortization period. Intuitively as the
payment rate increases the time required to make the necessary principal
payments decreases and, therefore, investor’s exposure decreases as
well. Notably, with less outstanding principal exposed to time, cumulative
losses decrease. We are left to draw the conclusion
No comments:
Post a Comment