Cash flow yield default, limitation, another, whether

bcp901

In one vignette Schwer says

Cash flow yield does not consider credit risk assumption. (In the same choice one answer was one of the limitations was default risk was constant over the life). This is ok.


In another vignette, it says default risk was constant is not a limitation.


Can any one clarify whether credit risk and default risks are limitations or not. What are the limitations of cash flow yield.

thanks

Uranus08

vinnie -

Cash flow yield assumes CONSTANT prepayments, even with changing interest rates.

tianxin

Northeastern. Looks like you can do the test even in the sleep. How long did you study all this stuff?

giants2010

i thought the limitation is that it assumes its reinvested at the same rate, that the asset gets held till maturity, and there is no prepayments.

troymo

actually its IRR and reinvestment risk