CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features
In an auto loan ABS, the absolute prepayment speed (ABS) measure is most likely expressed as:
The absolute prepayment speed (ABS) for auto loans expresses monthly prepayments as a percentage of the original number of loans in the pool. It differs from CPR, which is an annualized rate on current balance, and from PSA multiples used for mortgages.
- Aa percentage of the original number of loans in the pool prepaying each monthCorrect
- Ban annualized rate applied to the current outstanding balance
- Ca multiple of a standard prepayment benchmark curve
Explanation
The ABS prepayment measure is the monthly prepayment as a percentage of the original number of loans in the pool. The annualized rate on the current balance describes CPR, and benchmark multiples describe PSA, a mortgage convention.
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