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Study Session 13: Fixed Income: Topics in Fixed Income Analysis


Q. Which of the following statements is least accurate? 

A. Putable bonds always exhibit positive convexity. 

B. Putable bonds have greater upside potential than otherwise similar callable bonds when interest rates fall. 

C. The upside for a putable bond is much larger than the downside when the put option is out of the money. 

The answer is C. What’s so lesser accurate about it?

PSA,SMM,and CPR in Level 2 2018?

I was going through some past mocks, and came across a mortgage related vignette related to PSA, SMM, and CPR, but i didn’t come across this at all in the CFA curriculum for 2018. Did I just miss this or has this been taken out of the 2018 curriculum?

Criteria in decididing when to bootstrap or use the spot rates provided in the problem

for the official mock A PM, the question 43 provided par rates and spot rates but we had to bootstrap and calculate new spot rate to identify an arbitrage opportunity.

But for the official topic question in computing the value of 4 year bond, there was no need to boostrap and had to simply use the provided spot rates (the zero-coupon yield curve).

What is the criteria in deciding when to bootstrap or not?

CDS question

If you’re BEARISH (aka, anticipating the underlying bond to fall in price/default), why would you want to SHORT a CDS?

This is very counterintuitive when you start thinking of the payoffs. 

defining features of a convertible bond

Mike Ross, CFA, is working with Caxton Global. He has been asked to value a $100 par, two-year, floating rate note that pays LIBOR. He has construct the two-year LIBOR tree as shown below for valuing this bond.

Year 0 - 4.50%

Year 1 - 5.50%  & 3.50%

He used this LIBOR tree to calculate the value of the floater with an assumption that it is capped with a cap rate of 5%. The value of this floater is:

A ) $98.38

B ) $98.16

C ) $98.99

OAS: Callable Bonds vs Putable Bonds

Can anyone help clear this up for me?  I got this Topic Test question wrong and the answer does not make sense to me.  Below is the Vingette text, followed by the answer choices, followed by the explanation.  I  would think that because Callable bond value increases as interest rate volatility decreases, the OAS would decrease due to it being apart of the denominator in the present value equation ) and vice versa for putable bonds)

Generalizations About Durations

I dont get the generalizations of bond durations in the LOS 37.j 

The Schweser notes say

1) If an option free bond is trading at par, the bond’s maturity key rate duration is the only rate that effects the bond’s value

Help me in leaving a topic

Hi Folks 

I am planning to leave a topic of weightage of 10 % (12 questions ) as i am running short of time . It would be most probably Fixed Income as i will be taking too much time to understand .

Is it possible to pass if i get between 51 % to 70 % in rest 9 topics .

Please suggest