How This Book Is Designed

Since the primary purpose of this book is model construction, the first two steps mentioned in this introduction plan and design and obtaining all necessary information are assumed to be completed. The task at hand is to construct a basic framework for the model with a blank Excel workbook. The basic framework will consist of the most fundamental pieces of data and structure that are required for many further more detailed concepts to be developed. The process of creating this framework is...

Info

Closing Date First Payment Date Day-Count System Pmt Frequency FIGURE 1.3 Basic inputs for dates and timing. FIGURE 1.3 Basic inputs for dates and timing. 3. Moving under the transaction name in cell B3, input the title Dates amp Timing. Now starting in cell B4 and continuing through to cell B7, enter the following text into the cells respectively Closing Date, First Payment Date, Day-Count System, and Pmt Frequency. Highlight cells B3 C8 and format the area with a border. At this point, aside...

Prepayments

In Chapter 2, a notional amortization schedule was created that provided a basis for cash flowing into a transaction. This cash flow assumes that every loan in the pool will make payments exactly as they are scheduled. If it were that simple many finance professionals would be out of a job. In reality, cash flow becomes irregular when obligors choose to pay more than the scheduled amount, a prepayment, or when they do not pay at all, a delinquency, which sometimes becomes a default. This...

How Prepayments Are Tracked

While the concept of a prepayment is relatively simple, there are numerous methods of tracking prepayments and calculating prepayment rates. Prepayment terminology cannot only differ between asset classes, but even between companies within the same industry. It is important to understand what each prepayment expression means and the underlying calculation involved so historical data can be interpreted and used to make projections. Prior to exploring how to work with prepayment data, it would be...

Introduction

The basic idea behind any financial model is to bring order and understanding to the numerous variables and complex information that financial transactions present. Learning to build one from a blank spreadsheet is often a daunting task to newcomers because of the sheer amount of information and nearly infinite methods of manipulating data. This book seeks to bring a systematic, well-explained method to constructing a particularly popular and adaptable type of model the cash flow model. Through...