Monthly payment rate

The key performance indicators for analysing credit card portfolios include portfolio yield, monthly payment rate (MPR), delinquencies, charge-offs, and excess spread. For most European credit card ABS, these performance indicators are published on a monthly basis on Bloomberg. The high degree of standardisation in terms of which performance indicators are published and how they are calculated makes the credit card ABS market very transparent. This also allows us to construct meaningful indices which help us track the performance of the whole (or a significant part) of the credit card market. 

We will discuss portfolio yield, monthly payment rate (MPR), delinquencies, charge-offs, and excess spread as well as excess spread efficiency (ESE) and charge-off coverage (COC) the latter two are combinations of the first five performance indicators. The various performance indicators will be shown for European and US credit card collateral. We will use our BECCI for European collateral and Standard Poor s Credit Card Quality Indexes (S P Index) for US collateral. 

There is usually a correlation between the MPR and the credit quality of the cardholder. Convenience users are not overextended, while cardholders who make the monthly minimum payment have less flexibility in their budget should an interruption in their income occur. Exhibit 13.15 shows that while fluctuating on a month-on-month basis, monthly payment rates overall were relatively stable between January 2000 and September 2002. 

The monthly payment rate (MPR) reflects the proportion of the principal and interest on the pool that is repaid in a particular period. The ratings agencies require every nonamortizing ABS to establish a minimum as an early-amortization trigger. 

Monthly Payment Rate (MPR) collections/outstanding pool balance all nonamortizing asset classes... 

A finance company gives the following figures For a loan of 1,000 a person must make 36 monthly payments of 38.62 per month. What is the rate of return What is the nominal interest rate ... 

You borrow 35,000 from a bank at 10.5% interest to purchase a multicone cyclone rated at 50,000 ft3/min. If you make monthly payments of 325 (at the end of the month), how many payments will be required to pay off the loan ... 

Assumes 14,000 mi/yr driving and 350 mile range (except the Battery EV that has 120 mile range) vehicle costs are adjusted for resale value with monthly payments over 5 years at 4% finance rate insurance, tax, and license costs are excluded. 

A revamping project needs 1000000,- investment. Someone has the idea to put the whole money in a bank account at 10% annual interest rate and ask for a loan at the same rate, but with monthly payments. Examine the feasibility of this proposal. 

Index- The interest rate or adjustment standard that determines the changes in monthly payments for an adjustable rate loan. 

The master trust transactions are largely insensitive to prepayment rates. The only requirement is that the principal receipts in the trust are sufficient for it to accumulate the bullet payments to meet the scheduled redemption dates. The principal payment rate, measured as the proportion of collateral redeemed or repurchased, has been running at an average rate of 4% per month. 

Exhibit 11.18 shows the principal payment rate is somewhat erratic on a monthly basis but has generally been increasing. However, with a collateral pool of 24 billion and principal collections running at their average rate of 4%, it would take less than one month to accumulate the principal required to redeem the largest outstanding note. 

EXHIBIT 11.18 Monthly Principal Payment Rate (% of collateral by balance)... 

Determine the monthly payments for a five-year, 10,000 loan at an interest rate of 8% compounding monthly. 

You have accepted a loan in the amount of 15,000 for your new car. You have agreed to pa r the loan back in four years. What is your monthly payment if you agree to pay an interest rate of 9% compoundii monthly... 

In order to purchase a new car, ims ine that you recendy have borrowed 15,000 from a bank that charges you according to a nominal rate of 8%. The loan is paj le in 60 months, (a) Calculate the monthly payments, (b) Assume the bank chaiges a loan fee of 4.5% of the loan amount payable at the time they give you the loan. What is the eflFective interest rate that you actually are being charged ... 

An interest rate swap is thus an agreement between two parties to exchange a stream of cash flows that are calculated hy applying different interest rates to a notional principal. For example, in a trade between Bank A and Bank B, Bank A may agree to pay fixed semiannual coupons of 10 percent on a notional principal of 1 million in return for receiving from Bank B the prevailing 6-month LIBOR rate applied to the same principal. The known cash flow is Bank As fixed payment of 50,000 every six months to Bank B. 

Figure 11.2 is a one-period binomial interest rate tree, or lattice, for the six-month interest rate. From this lattice, the prices of six-month and 1-year zero-coupon bonds can be calculated. As discussed in chapter 3, the current price of a bond is equal to the sum of the present values of its future cash flows. The six-month bond has only one future cash flow its redemption payment at face value, or 100. The discount rate to derive the present value of this cash flow is the six-month rate in effect at point 0. This is known to be 5 percent, so the current six-month zero-coupon bond price is 100/(1 + [0.05/2]), or 97.56098. The price tree for the six-month zero-coupon bond is shown in FIGURE 11.3. 

Level-payment fixed-rate mortgages, the conventional form in the United States, have fixed terms to maturity and specify monthly payments of fixed-rate interest. The monthly interest payment on a conventional fixed-rate mortgage is given by formula (14.3), which is derived from the conventional present-value equation via the steps shown in (14.1) and (14.2). 

Assume that the constant monthly prepayment rate for a pool of mortgages is 2 percent, the outstanding principal balance at the start of the month is 72,200, and the scheduled principal payment is 223. To estimate the amount of principal prepayment for that month, the scheduled payment is subtracted from the balance, giving a total of 71,977, which is multiplied by the constant monthly prepayment rate, giving a prepayment amount for that month of 1,439. 

The actual cash flows of a mortgage pass-through depend, of course, on the cash flow patterns of the underlying mortgages. The projected monthly payment for a level-paying fixed-rate mortgage is given by formula (14.8). 

Equation (l4.9) states that the projected monthly interest payment can be obtained by multiplying the mortgage balance at the end of the previous month by the monthly interest rate. The expression for calculating the projected scheduled monthly principal payment for any month is (14.10). 

Warm-up example 4. You need to buy a new refrigerator. Based on your initial research, you go to The Economy store. The advertised price on the fridge you are interested in is 1,000.00, and the seller gives you the option to buy the refrigerator with 24 equal monthly payments at an interest rate of 3.5 % per month. As a good Introduction to Engineering student, you analyze other options before taking a decision. Unfortunately, as a student, you have encountered several difficulties in... 

Superscreen TV [3]. You have your eye on a 55" HD TV, but you cannot afford its 1,500 price tag. The salesman offers you payment plans of 12, 24, or even 36 equal payments. The monthly interest rate in this mega store is 2.5 %. What is the monthly payment in each case 12, 24, and 36 payments ... 

Superscreen TV 2 [3]. Although you can make 36 payments of 63.68, before making a deal with the salesman, you go to the bank for a consumer loan. The executive tells you that because you are an old customer, you will receive a loan with an exclusive monthly interest rate of 0.6 %. (a) What is the monthly payment to the bank in each case of 12, 24, and 36 payments (b) Any comments ... 

You have just purchased a new car by borrowing 20,000 for four years. Your monthly payment is 500. What is your nominal interest rate if conpounded monthly ... 

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