Fixed Income Chapter 10 Homework

Fixed Income Chapter 10 Homework - Chapter 10 Mortgage...

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Chapter 10 – Mortgage Backed Sector of the Bond Market 1) Which of the following statements concerning interest only (IO) and principal only (PO) pass-through securities is false? a. Pass-through securities have cash flows that can be divided into interest only and principal only components b. Interest only (IO) pass-through’s generally increase in value when the interest rates rise c. Principal only (PO) pass-through’s generally increase in value when interest rates fall d. If interest rates have fallen, risen, and then fallen again, the values of the IOs and Pos will be more affected by the second decrease 2) Which of the following statements concerning the role of a support tranche is a planned amortization class (PAC) collateralized mortgage obligation (CMO) is False? a. The purpose of a support tranche is to provide prepayment protection for one or more PAC tranches b. The support tranches are exposed to extremely high levels of credit risk c. If prepayments rates are too low to maintain the PAC schedule, the
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Fixed Income Chapter 10 Homework - Chapter 10 Mortgage...

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