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. Creditor

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

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

    A type of analysis an investor or bond portfolio manager performs ...
  4. Credit

    1. A contractual agreement in which a borrower receives something ...
  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. Insurance

    Credit Card Perks You Never Knew You Had

    From car insurance to concert tickets, be sure to take advantage of whatever your card has to offer.
  2. Credit & Loans

    Should You Close Your Credit Card?

    Find out the consequences before deciding to end your credit agreement.
  3. Entrepreneurship

    Getting To Know Business Models

    Learning how to assess business models helps investors identify companies that are the best investments.
  4. Investing Basics

    What is the effect of price inelasticity on demand?

    Find out why price inelasticity of demand shows the relationship between demand and price if the price of an inelastic good is either lowered or raised.
  5. Investing

    Reassessing Your Approach To Bond Investing

    Rethinking your fixed-income portfolio may not resonate in quite the same way as dropping 10 pounds or finally giving up that smoking habit.
  6. Mutual Funds & ETFs

    How much of my total assets should I be keeping in my money market account?

    Investing a portion of total assets in a cash position such as a money market account provides investors access to funds in the case of an emergency.
  7. Bonds & Fixed Income

    How does preferred stock differ from company issued bonds?

    Discover the primary differences between preferred stock and corporate bonds, two income-generating investment vehicles issued by certain companies.
  8. Bonds & Fixed Income

    What is the difference between yield to maturity and the yield to call?

    Determining various the various yields that callable bonds can provide investors is an important factor in the bond purchasing process.
  9. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  10. Bonds & Fixed Income

    How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than a bond with a coupon.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center