Question

Which statement is true about Weighted Average Life and Weighted Average Maturity? A. WAL is always...

Which statement is true about Weighted Average Life and Weighted Average Maturity?

A.

WAL is always strictly longer than WAM
B.

In a positive amortization loan, WAL is longer than WAM
C.

In an interest only loan WAL and WAM are the same
D.

WAL is always strictly shorter than WAM
E.

WAL is always the same as WAM
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Homework Answers

Answer #1

When we will be considering the interest only loan, then weighted average life and weighted average maturity will be similar because weighted average maturity will be considering both the interest payment and the principal payment but weighted average life will only consider the principal payment whereas in interest only loan, there is only the payment in relation to the interest first and principals are always paid at the last and hence the overall weighted average life and weighted average maturity will be similar.

All other statements are false.

Correct answer is option ( C) In an interest only loan, weighted average life and weighted average maturity are similar

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