1.50% biggest change is 25-50-50 LT ability is CFO short end outperforms no prepayment risk #6? then PAC tranche payment less than 6 if psa above 250 PO highest if paid off earliest IO goes higher, then flattens CMO definition - yes what was #6 AM?
Short end outperforms.when? I had it as when it flattens… IO - I had it as IO outperforms always… CMO definition - yes…
I said short outperforms long end during a steepening of the curve, right?
Agree with QBanky. Short end outperforms when it flattens. so long end goes down and short end goes up. But more i think of it, what if its a inverted curve to begin with?
If curve steepens, then rates go down on short end, and prices move opposite to rates, so short outperforms. Right?
Think they said it was a normal curve… And I agree about flattening
^^^^^^^ yes.
it said the beginning one is upward slope
when the long end goes down and you are already invested, you win! and vice versa for the short end.
F*ck, I said inverted butterfly curve switches the performance. NUTS!
why would PO be highest if paid earlier. If interest rate goes down, prepayment comes in the picture and investor will have to reinvest money received in lower rate. I guess they will get their highest return when they get most of their money but not all. This will save them from any risks and they will also get interest on the money left in PAC/Tranche. So answer is D.
if this happens, it would be an iffy…I thought about this during the exam, and the question seemed to imply something like “when is it that this definitely holds…” yodhava Wrote: ------------------------------------------------------- > Agree with QBanky. Short end outperforms when it > flattens. so long end goes down and short end goes > up. > > But more i think of it, what if its a inverted > curve to begin with?
You buy PO’s at a discount. So, if you get paid early, you get that whole discount right away.
i think i got 11/12 on fixed income.
Smarshy Wrote: ------------------------------------------------------- > I said short outperforms long end during a > steepening of the curve, right? Agree. Long end goes up, long prices go down - short end wins.
I put it down as the curve as well… I don’t know why though 
… the flattener seemed too much of a give away somehow…
OK, so for key rate duration, were the bonds one year seasoned or not?
i haven’t been able to remember the 6th Q in AM session, anyone?
I thought about this one too…Do they mean short end of the interest rate curve out/under performa , which means just the interets rate moves up and down (which mens that the short end interest rate outperforms during flattening). But if we are talking about the underlying bond, then the short end bonds will Underperfrom during flattening. I think the question asked about the interest rate curve not bonds…does this sound correct? YeahYeah Wrote: ------------------------------------------------------- > when the long end goes down and you are already > invested, you win! > and vice versa for the short end.
you might be right, but I don’t think so. from my point of view, it doesn make much sense to talk about “the interest rate” outperforming in this context. What would “perform” is your FI portfolio, and the portfolio would obviously move in the opposite direction of the rates.