University:
CFA Institute
Course:
CFA Level 2 - Fixed Income
Academic year:

2023
Views:

7

Pages:

2
Author:

anon

CFA Level 2 - Fixed Income Session 15-Reading 59 Valuing Mortgage-Backed and Asset-Backed Securit 3 (Practice Questions, Sample Questions) 1. The major differences in effective duration among analytical systems providers are attributable to all of the following assumptions EXCEPT: A) option adjusted spread (OAS) differences. B) differences in changes in interest rates. C) mortgage-rate differences Explanation: (C) Mortgage rate differences do not cause effective duration differences among analytical system providers 2. Which of the following is NOT a major reason why the effective durations reported by dealers and vendors can be very different? A) Different option-adjusted spreads. B) Differences in the relationship between short-term interest rates and refinancing rates. C) Differences in the assumption how yield volatility changes for shocks to the yield curve Explanation: (C) The major differences in the effective duration among analytical systems providers are attributable to differences in the following: the incremental change in interest rate, the prepayment model, the OAS, and the interest rate/refinancing rate spread assumption 3. Why do differences in the size of the rate shock produce different effective durations? A) The yield curve is not flat. B) Different rate shocks result in different yield volatility changes. C) The price-yield relationship is convex Explanation: (C) If the incremental change in interest rates is too large, the effects of convexity contaminate duration measurements