See "How Do I Select The Best of Its Type" for an explanation of quoted and realized yields.
Conversely, realized yields will be higher than quoted yields if actual prepayments are slower than assumed prepayments.
Realized yields will be greater than quoted yields if actual prepayments are faster than assumed prepayments.
This shortens the effective maturity of the REMIC bonds and raises the realized yield over the quoted yield.
The averages of the ex post or realized yields on dedicated portfolios and the ex post rates of growth in wages were approximately the same.
Adjustments estimated below are affected by how, on balance, interest rate shifts impact the realized yield on dedicated portfolios.
Mathematical Expression Omitted] where r' = realized yield on dedicated portfolios during period between t = 0 and t = k; g' = realized rate of wages growth during period between t = 0 and t=k; (r'-g'), k = realized differential; (r'-g')t=o = contemporaneous differential;7 X' = coefficient of adjustment for dedicated portfolios; and k length of period.
Although assumed and actual principal repayment schedules for mortgage-backed securities are more involved than in this simple example, the same general relationship between quoted and realized yields holds.
Conversely, realized yields on mortgage-backed securities purchased for premiums will be higher than quoted yields if actual prepayments are slower than assumed.
Conversely, realized yields will be lower than quoted yields if actual prepayments are slower than assumed prepayments.
The greater the difference between the assumed prepayments and the actual prepayments, the greater the difference will be between the quoted and realized yield.