Q 45 and 46 Schweser Book 1 Ex 2 Am

regarding, reference, different

Fixed Income question:

You can reference the book if you want but on 45 can some one back me up that they say that you subtract the value of the callable bond from the non-callabel which means you get a negative value and is incorrect. They then to the calculation properly but if you read the statment it is reversed. Not sure CFAI would do that.

And on 46 the motes say that "OAS will be affected by different assumptions regarding the volatility of interest rates." in the answer. Am I missing something here? I thought it was the complete opposite......

Any help would be much appreciated. So close to life again....thanks for making my long weekend soooo fun CFA.

ayaz_mahmud369

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2^#

发表于 2011-7-13 13:47 | 只看该作者

Any love out there?

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MiniMe7

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发表于 2011-7-13 13:47 | 只看该作者

First part you are right it doesn't make sense let me look at it closer.

Second part.

Value of an option with an interest rate is affected by volatility in interest rates. Similar to an equity option is affected by volatility of underlying stock.

Its not asking about the time value of money impact of interest rates and options which has a smaller impact that volatility of interest rate for an interest rate based option.

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Analyze_This

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4^#

发表于 2011-7-13 13:47 | 只看该作者

Ok.... the call option is owned by the bond issuer. So from the bond issuer's perspective the call has a value of 1.56

So the market value of call which the bond issuer owns (he is the only one that can exercise not the investor) is 1.56. We are short that call on bond as the investor, so the value to the investor is -1*call price.

Make sense?

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Q 45 and 46 Schweser Book 1 Ex 2 Am

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