What does the term Absolute Prepayment Speed (APS) refer to?

Absolute Prepayment Speed (APS) is a metric used to measure the rate at which borrowers are expected to prepay their loans relative to the outstanding balance. This is particularly relevant for asset-backed securities, as the timing and amount of prepayments can significantly impact the cash flows and profitability of these securities.

The expected maturity of issued asset-backed securities, which is the correct interpretation in this context, is influenced by how quickly the underlying loans are paid off. If prepayments occur faster than anticipated, the securities will mature sooner than expected, which affects both the yield and the risk profile of the investment. Therefore, understanding APS provides valuable insights into the duration and interest rate risk associated with these securities.

The other concepts provided do not accurately capture the essence of Absolute Prepayment Speed. Interest rates pertain to the cost of borrowing and are not indicative of prepayment behavior. Historical performance of auto loans focuses on past performance rather than expected speeds of prepayment. The ratio of collateral to loan amount reflects the loan-to-value (LTV) ratio, which is more about risk assessment than prepayment speed. Thus, the correct choice highlights the significance of expected maturity in the context of prepayment behavior in asset-backed securities.