medium · Asset-Backed Securities collateral
Which of the following describes the relationship between 'Weighted Average Life' (WAL) and the 'Weighted Average Maturity' (WAM) of the underlying loans?
- WAM and WAL are mathematically identical figures for any pool composed entirely of level-pay amortizing loans.
- WAL applies strictly to the bond tranches, while WAM applies strictly to the underlying collateral pool.
- WAL always runs longer than WAM because the WAL calculation folds in accrued interest payments.
- WAL is always shorter than WAM because loans in the pool amortize and prepay before their final due dates.
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