Fixed Income Analysis Workbook (CFA Institute Investment by Frank J. Fabozzi CFA

By Frank J. Fabozzi CFA

During this absolutely revised and up to date moment variation of mounted source of revenue research, readers might be brought to various very important fastened source of revenue research matters, together with the overall ideas of credits research, time period constitution and volatility of rates of interest, and valuing bonds with embedded innovations.

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Sample text

Loans included in an agency issued mortgage-backed security are conforming loans—loans that meet the underwriting standards established by the issuing entity. For a mortgage passthrough security the monthly payments are passed through to the certificate holders on a pro rata basis. In a collateralized mortgage obligation (CMO), there are rules for the payment of interest and principal (scheduled and prepaid) to the bond classes (tranches) in the CMO. The payment rules in a CMO structure allow for the redistribution of prepayment risk to the tranches comprising the CMO.

What is the current yield for the bond? b. What is the limitation of the current yield measure? 3. 2%. 8%. 4. The following yields and prices were reported in the financial press. Are any of them incorrect assuming that the reported price and coupon rate are correct? If so, explain why? 1% 5. Comment on the following statement: ‘‘The yield to maturity measure is a useless measure because it doubles a semiannual yield (calling the annual yield a bond-equivalent yield) rather than computing an effective annual yield.

7. a. Why is the yield spread between a bond with an embedded option and an otherwise comparable Treasury security referred to as a ‘‘nominal spread’’? b. What is an option-adjusted spread and why is it superior to a nominal spread as a yield spread measure for a bond with an embedded option? 8. 02%. Compute the following: a. the absolute yield spread b. the relative yield spread c. the yield ratio 9. Following is a quote that appeared in the May 19, 1999 Global Relative Value by Lehman Brothers (COR-1): As we have written in the past, percent yield spreads (spread as a percent of Treasury yields) are still cheap on an historical basis.

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