Question

What is the WAC and WAM of a portfoli containing the four mortgaes described in the following table:

Mortgage Remaining Principal Balance Coupon rare Remining maturity

A 110,000 8.00 340

B 80,000 6.10 355

C 150,000 7.50 325

D 160,000 6.80 330

Answer 1

Following is the table of calculations of weighted average coupon WAC and weighted average maturity WAM:

Mortgage	Remaining principal balance	Coupon rate	Remaining maturity	Weights	Weighted coupon	Weighted maturity
A	1,10,000	8	340	110000/500000 =0.22	8 x 0.22 =1.76	340 x 0.22 =74.8
B	80,000	6.1	355	80000/500000 =0.16	6.1 x 0.16 =0.976	355 x 0.16 =56.8
C	1,50,000	7.5	325	150000/500000 =0.3	7.5 x 0.3 =2.25	325 x 0.3 =97.5
D	1,60,000	6.8	330	160000/500000 =0.32	6.8 x 0.32 =2.176	330 x 0.32 =105.6
Total	5,00,000			0.22+0.16+0.30+0.32 = 1	1.76+0.976+2.25+2.176 = 7	74.8+56.8+97.5+105.6 = 335

So the WAC = 7% and WAM = 335