Goldman Sachs 2002 Annual Report Download - page 76

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of financial assets, respectively, including $89.3 billion
and $47.6 billion of agency mortgage-backed securities,
respectively. Cash flows received on retained interests
and other securitization cash flows were approximately
$534 million for the year ended November 2002. As of
November 2002, the firm held $3.7 billion of retained
interests, including $737 million of retained interests for
which the fair value is based on quoted market prices in
active markets.
N otes to Consolidated Financial Statem ents
GO L D M A N SA CH S 2002 A N N UAL R EPO RT 73
The following table sets forth the weighted average key economic assumptions used in measuring the fair value of
retained interests for which fair value is based on alternative pricing sources with reasonable, little or no price trans-
parency and the sensitivity of those fair values to immediate adverse changes of 10% and 20% in those assumptions:
AS OF NOVEMBER 2002
TYPE OF RETAINED INTERESTS
($ IN MILLIONS) MORTGAGE OTHER ASSET-BACKED
Fair value of retained interests $1,977 $1,022
Weighted average life (years) 4.1 4.7
Annual prepayment rate 25.4% N/A
Impact of 10% adverse change $ (7) —
Impact of 20% adverse change (11) —
Annual credit losses(1) 2.5% 1.7%
Impact of 10% adverse change $ (1) $ (8)
Impact of 20% adverse change (2) (15)
Annual discount rate 7.1% 7.1%
Impact of 10% adverse change $ (38) $ (4)
Impact of 20% adverse change (74) (8)
(1) The impact of adverse changes takes into account credit mitigants incorporated in the retained interests, including overcollateralization and sub-
ordination provisions.
(2) Includes retained interests in government and corporate bonds and other types of financial assets that are not subject to prepayment risk.
The preceding table does not give effect to the offsetting
benefit of other financial instruments that are held to
hedge risks inherent in these retained interests. Changes
in fair value based on a 10% adverse variation in
assumptions generally cannot be extrapolated because
the relationship of the change in assumptions to the
change in fair value is not usually linear. In addition, the
impact of a change in a particular assumption is calcu-
lated independently of changes in any other assumption.
In practice, simultaneous changes in assumptions might
magnify or counteract the sensitivities disclosed above.
(2)