tools for captial market expectations (Q3 Reading23, page111 (vol3))

Q3 Reading23, page111 (vol3) (i) MBS doesn’t have call risk spread? Shouldn’t 80bps be added on top of 95bps as well? (ii) When calculating historical equity risk premium (ERP) historical gov Bond yield is used; When calculating expected ERP current gov Bond yield is used Is that always the case? Why?

ryanunsw Wrote: ------------------------------------------------------- > Q3 Reading23, page111 (vol3) > > (i) MBS doesn’t have call risk spread? Shouldn’t > 80bps be added on top of 95bps as well? I think the prepayment risk is just the call risk spread? Actually I have a side question: why using long-term inflation expection but not the currentl inflation rate? > (ii) When calculating historical equity risk > premium (ERP) historical gov Bond yield is used; > When calculating expected ERP current gov Bond > yield is used > Is that always the case? Why? Is this related to part (ii) of the question? - sticky

thanks sticky, I had the same Q “Re:long-term inflation expection but not the currentl inflation rate”, the text is really brief on this bit. it relates to part A & part C… am I spending too much time on the details? but they could certainly show up in the real exam though…

this has been discussed http://www.analystforum.com/phorums/read.php?13,670237,673864#msg-673864

thanks for the link, volkovv