Weighted Average Maturity (WAM)

    graph TD;
	    A[Fixed Income Securities] --> B[Weighted Maturity];
	    B --> C[Longer WAM = Higher Risk];
	    B --> D[Shorter WAM = Lower Risk];

## What does a higher WAM imply for a debt portfolio? - [ ] Lower risk and higher returns - [x] Greater interest rate and credit risk - [ ] No impact whatsoever - [ ] Instant bond fame and fortune > **Explanation:** A higher WAM suggests that the securities will take longer to mature, resulting in increased sensitivity to interest rate changes. ## How is WAM calculated? - [ ] Average of all maturity dates - [ ] Weighted average of the maturity dates of each loan - [ ] Random guess method - [x] Summation of maturities, each weighted by its proportionate share > **Explanation:** WAM is calculated by taking the maturity dates of each debt security weighted by their proportion in the portfolio, not by a magic 8-ball! ## What does WALA stand for? - [ ] Weighted Average Load Assessment - [ ] Work At Loan Age - [ ] Wonderful Age of Loan Amortization - [x] Weighted Average Loan Age > **Explanation:** WALA is the weighted average loan age, not a measure of how well a loan has aged in terms of luxury! ## Is a shorter WAM generally associated with higher or lower risk? - [x] Lower risk - [ ] Higher risk - [ ] No change in risk - [ ] Risk levels are mythical creatures > **Explanation:** Shorter WAM typically signifies a portfolio that is less exposed to interest rate risk. Risk levels being mythical creatures? Now that's a creative take! ## If WAM and WALA are inversely related, what might that imply? - [ ] They're best friends forever - [ ] High WAM usually means low WALA, and vice versa - [x] Longer maturity = lesser age of loans - [ ] They simply don't get along well > **Explanation:** The longer the maturity, the younger the loans in the pool due to newer loans being added, leading to the inverse relationship. ## What does the WAM measure help investors make decisions about? - [ ] Which stocks to buy - [x] Risk and timing of cash flow from the securities - [ ] Life decisions like what to have for lunch - [ ] Loan personalities > **Explanation:** WAM assists investors in assessing potential risks and when they can expect to see a return on their investment. Sadly, lunch decisions still require their own research! ## Who should primarily pay attention to WAM? - [ ] Cats (they never do anyway) - [ ] Celebrated chefs - [x] Investors managing debt portfolios - [ ] High school students figuring out finances > **Explanation:** WAM is particularly important for investors who manage debt portfolios as it directly relates to maturity and cash flow timing. ## Can WAM be used for all types of securities? - [ ] Yes, all assets are created equal - [ ] Only for corporate debts and bonds - [ ] Only for mortgage-backed securities - [x] Primarily for fixed-income securities like bonds and MBS > **Explanation:** WAM is commonly used to assess the maturities of fixed-income securities like bonds and mortgage-backed securities, not just all assets indiscriminately! ## Where can one find reputable WAM figures? - [ ] Seek an oracle - [ ] Only available in classified newsletters - [x] Financial databases and information platforms - [ ] From a friendly robot at the bank > **Explanation:** Reputable WAM figures can generally be found in financial databases or platforms where such investment data is regularly updated. ## On average, how long does it take a mortgage-backed security to mature? - [ ] Forever and a day - [ ] Changes are rapid and unpredictable - [x] It varies; typically ranges from 15 to 30 years - [ ] Depends only on the interest you pay > **Explanation:** It varies significantly, typically extending anywhere from 15 to 30 years depending on the type of loans that make up the mortgage-backed securities!