Why are prepayments of minor importance for automobile loan-backed securities?
What will be an ideal response?
Prepayments are less of a problem (say relative to mortgage refinancing) because auto loans are less sensitive to changes in interest rates. For example, an auto loan is a relatively small loan with short horizons so that refinancing may have little to gain. Furthermore, interest rates for the automobile loans are already substantially below market rates if they are offered by manufacturers as part of a sales promotion. More details on auto loan prepayments are given below.
For securities backed by auto loans, prepayments result from sales and trade-ins requiring full payoff of the loan, repossession and subsequent resale of the automobile, loss or destruction of the vehicle, payoff of the loan with cash to save on the interest cost, and refinancing of the loan at a lower interest cost.
Prepayments due to repossessions and subsequent resale are sensitive to the economic cycle. In recessionary economic periods, prepayments due to this factor increase. Whereas refinancings may be a major reason for prepayments of mortgage loans, they are of minor importance for automobile loans. Moreover, the interest rates for the automobile loans underlying several issues are substantially below market rates if they are offered by manufacturers as part of a sales promotion.
You might also like to view...
Three different models of automobiles (A, B, and C) were compared for gasoline consumption. For each model of car, fifteen cars were randomly selected and subjected to standard driving procedures. The average miles/gallon and sample standard deviations obtained for each model of car are shown below. Car A Car B Car C Average miles/gallon42 49 44 Sample Standard Deviation4 5 3 ? Use the above data and test to see if the mean gasoline consumption for all three models of cars is the same. Let ? = .05, and use both the critical and p-value approaches.
What will be an ideal response?
Single linkage is a measure of calculating dissimilarity between clusters by:
a. considering only the two most dissimilar observations in the two clusters. b. computing the average dissimilarity between every pair of observations between the two clusters. c. considering only the two closest observations in the two clusters. d. considering the distance between the cluster centroids.
Briefly list strengths and weaknesses of this display. Cite specific principles of good graphs, as well as offering your own general interpretation.
What will be an ideal response?
In a______________________________database, the entity is represented as a table.
Fill in the blank(s) with the appropriate word(s).