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6-16 When a Finance Company Pools Mortgages with Similar Characteristics

question 48

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6-16 When a finance company pools mortgages with similar characteristics and securitizes the pool,the new mortgage-backed security is removed from the balance sheet of the finance company.


Definitions:

Nonsystematic Variance

The portion of an investment's variance that is attributable to the investment's specific factors, as opposed to the overall market movement.

Market Index

A market index is a hypothetical portfolio of investment holdings which represents a segment of the financial market.

R-squares

A statistical measure in finance that represents the proportion of the variance for a dependent variable that's explained by an independent variable or variables in a regression model.

Portfolio Performance

The assessment of how an investment portfolio has done in terms of returns for the risk taken, often compared against benchmarks or goals.

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