easy · Asset-Backed Securities
If a pool has an SMM of 1.00%, how is the 'Monthly Decay Factor' (the survival fraction) defined?
- It is 0.99, representing the fraction of the eligible balance that did not prepay.
- It is (0.99)^12, representing the annualized survival rate of the pool.
- It is 0.01, representing the fraction of the pool that liquidated during the month.
- It is 1.01, representing the expected growth of the pool principal due to interest.
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