easy · Asset-Backed Securities collateral
An investor is comparing two tranches with the same 5-year final maturity. Tranche X is a bullet bond, and Tranche Y is a level-pay amortizing bond.
Which has the shorter WAL?
- Tranche Y, because principal is returned periodically throughout the 5 years.
- It depends mainly on the coupon rate spread between the two tranches.
- Tranche X, because the entire principal amount is returned in one lump sum at maturity.
- They have the same WAL, since both bonds share an identical five-year final maturity date.
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