Hi friends, I was having confusion regarding how the CPR (conditional prepayment rate) vs SMM was derived. Kindly let me know where I am going wrong… CPR = (1+SMM)^(12) - 1 --> Assumption is SMM is monthly and the compounded value should give CPR which is yearly rate. So SMM = (1+CPR)^(1/12) - 1 But the formulae given in the book is 1 - (1 - CPR)^1/12. Kindly help me clear my confusion please. thank you friends!
CPR = 1 - (1-SMM)^12 so if CPR is 6% --> SMM = 0.005143 not the other way around as you have it… based on the above - SMM = 1 - (1-CPR)^(1/12)
I remember the formula as: 1 - CPR = (1 - SMM)^12 1 - CPR is the yearly survival rate 1 - SMM is the monthly survival rate CPR is annualized SMM. It’s a small rearrangement, but I find it most intuitive.
Thank you friends! Very clear now. regards, Gopal.
1 - CPR = (1 - SMM)^12 is so much more intuitive. Thanks!
L3 candidates - you guys have to utilize SMM/CPR at L3, too? Just curious.
Its an old post from when they were l2 candidates
Oh, snap. Didn’t see the dates… I guess sooraj and cpk123 are pretty psyched right about now.
Hope your shit’s coming together OK, cleverCFA? As my buddy from 8th grade would keep telling me before exam month… this is the month we all get raped.
Yeah, I’m feeling a bit ill at the though of getting through this month. It’s going to be ugly.
I wish my shit was coming together. I feel like a donkey chasing after a carrot, I’m just never going to get to a level where I feel comfortable that I know the material.
Ha…the irony! We’d soon be pondering the mortality rates at the end of the exam!