Final answer:
The WAC and WAM are measures used in pass-through securities to calculate the average interest rate and maturity, respectively, of the underlying mortgages.
Step-by-step explanation:
The WAC and WAM are important measures used in the context of pass-through securities.
The Weighted Average Coupon (WAC) is the average interest rate on the mortgages included in the security. It calculates the coupon rate based on the loan balances and interest rates of the underlying mortgages.
The Weighted Average Maturity (WAM) measures the average time to maturity of the mortgages in the security. It considers factors such as prepayments which can impact the actual maturity of the pooled mortgages.