Zero Prepayment Assumption

AAA

DEFINITION of 'Zero Prepayment Assumption'

The supposition that scheduled principal and interest will be paid off with no installments. This is typically done as a means of providing a benchmark to gauge other, more complex assumptions. By determining what a product or service will cost without financing, individuals or companies can better budget their resources and plan for future expenditures and/or revenue growth.

INVESTOPEDIA EXPLAINS 'Zero Prepayment Assumption'

Prepayment assumptions are critical in valuing mortgage-backed securities with various models making assumptions about prepayment patterns under various interest rate changes. Thus, having an established standard can be helpful in determining the fair value of such investments.

RELATED TERMS
  1. Credit

    1. A contractual agreement in which a borrower receives something ...
  2. Creditor

    An entity (person or institution) that extends credit by giving ...
  3. Pre-Money Valuation

    A slang phrased that refers to the value of a company's stock ...
  4. Credit Analysis

    A type of analysis an investor or bond portfolio manager performs ...
  5. Surrender Period

    The amount of time an investor must wait until he or she can ...
  6. Treasury Direct

    The online market where investors can purchase federal government ...
Related Articles
  1. Credit Card Perks You Never Knew You ...
    Insurance

    Credit Card Perks You Never Knew You ...

  2. Should You Close Your Credit Card?
    Credit & Loans

    Should You Close Your Credit Card?

  3. Getting To Know Business Models
    Entrepreneurship

    Getting To Know Business Models

  4. A Look At The Most Popular Bitcoin Exchanges
    Investing Basics

    A Look At The Most Popular Bitcoin Exchanges

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center