easy · Asset-Backed Securities
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 for any pool of level-pay loans.
- WAL is only used for the bonds, while WAM is only used for the pool.
- WAL is always longer than WAM because it includes interest.
- WAL is always shorter than WAM because loans in the pool amortize and prepay before their final due dates.
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