标题: Reading 55: Mortgage-Backed Sector of the Bond Market-LOS j [打印本页]
作者: 土豆妮 时间: 2010-4-21 11:16 标题: [2010]Session 15-Reading 55: Mortgage-Backed Sector of the Bond Market-LOS j
Session 15: Fixed Income: Structured Securities
Reading 55: Mortgage-Backed Sector of the Bond Market
LOS j: Explain the investment characteristics of stripped mortgage-backed securities.
How is the price of a principal-only mortgage strip affected by declining mortgage rates in the market? The price of the principal-only strip:
When mortgage rates decline, prepayments are expected to increase. Therefore, the principal-only strip investor gets payments sooner increasing the value of the PO.
作者: 土豆妮 时间: 2010-4-21 11:16
Interest only (IO) strip cash flow:
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A) |
are the same throughout the life of the security. | |
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B) |
starts out small and gets bigger over time. | |
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C) |
starts out big and gets smaller over time. | |
IO strip cash flow starts out big and gets smaller over time.
作者: 土豆妮 时间: 2010-4-21 11:17
Principal-only strips are:
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A) |
could be sold at a discount or a premium, depending on economic conditions. | |
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B) |
sold at a considerable discount to par. | |
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Principal-only strips are sold at a considerable discount to par.
作者: 土豆妮 时间: 2010-4-21 11:17
Which of the following best describes a stripped mortgage-backed security (MBS)? A stripped MBS is a security:
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A) |
that provides no interest payments. | |
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B) |
whose distribution of principal and interest has been altered from a pro rata distribution to an unequal distribution. | |
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C) |
whose distribution of principal and interest has been altered from an unequal distribution to a pro rata distribution. | |
With a passthrough security, interest and principal payments generated by the underlying mortgage pool are allocated to the bondholders on a pro rata basis. This means that each passthrough certificate holder receives the same amount of interest and the same amount of principal. Stripped mortgage-backed securities differ in that principal and interest are not allocated on a pro rata basis.
作者: 土豆妮 时间: 2010-4-21 11:18
Which of the following is most accurate regarding the investment characteristics of a principal-only (PO) mortgage strip?
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A) |
The slower the prepayments the higher the investor's return. | |
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B) |
The faster the prepayments the higher the investor's return. | |
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C) |
The lower the coupon the higher the investor's return. | |
For a principal mortgage strip the investor does not receive interest but only the principal. Therefore, the sooner the investor receives the principal the higher the return.
作者: 土豆妮 时间: 2010-4-21 11:18
How is the price of an interest-only mortgage strip affected by declining mortgage rates in the market below the contract rate? The price of the interest-only strip:
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B) |
may increase or decrease. | |
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When mortgage rates decline, prepayments are expected to increase. This results in a deterioration of the expected cash flows from an interest-only strip.
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