26-97 What is the weighted average life of the above mortgage pool?
A)30 years.
B)2 months.
C)1.999 months.
D)1 month.
E)1.5 months.

Question

Quizplus · Accepted Answer

To calculate weighted average life, we need to find the sum of (principal outstanding of each mortgage * time to maturity of each mortgage) divided by the total principal outstanding of the pool. 
The calculation for this mortgage pool is: (0.3*0.5)+(0.4*1)+(0.2*2)+(0.1*4) = 0.5 years. 
Dividing by the total principal outstanding of $10 million gives us 0.5/10 = 0.05 years or 1.999 months. Therefore, the correct answer is option C.

26-97 What Is the Weighted Average Life of the Above