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LOS b: Explain the risks associated with investing in mortgage securities and discuss whether these risks can be effectively hedged.
Q1. The effects of recent technological and institutional innovations on the market for mortgage-backed securities has increased:
A) volatility risk.
B) model risk.
C) spread risk.
Q2. All of the following are risks associated with mortgage securities EXCEPT:
A) volatility risk.
B) model risk.
C) beta risk.
Q3. If a manager of mortgage backed securities is not hedging spread risk, the most likely reason is because hedging spread risk:
A) is impossible.
B) increases volatility risk.
C) reduces profitable opportunities.
Q4. Negative convexity is more likely to become more severe if:
A) volatility decreases.
B) the spread increases.
C) volatility increases.
Q5. An increase in the credit spread of a mortgage backed security:
A) decreases the security’s value relative to Treasuries.
B) increases the security’s value relative to Treasuries.
C) does not change the security’s value relative to Treasuries.
Q6. In analyzing the risk of mortgage backed securities, we say that:
A) interest rate risk is a component of spread risk.
B) interest rate risk and spread risk are distinct measures.
C) spread risk is a component of interest rate risk. | 
发表于 2009-3-6 11:04
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