Can anyone explain this answer to me… the solution says that PAC1 and PAC3 have the same PAC window… however they are different.
I got it wrong too. I think PAC 3 had a collar spread of 150 while PAC 1 had a spread of 165. I picked PAC 3 but for some reason they said it was 1.
Yeah, PAC 1 had the widest collar. and it was tied with PAC 3 as having the narrowest pac window, so it behaved like a bullet bond. you want the higher collar spread because of his first objective and narrow window so it fits his objective of gettng something that is like a bullet bond. after all that, i also got it wrong.
But a bullet you want the narrowest right? So to meet his objectives, we take the second most narrow window?
no. there were two columns, i think. you want the collar to be wide (165 vs 150)to guard against extension or prepayment risk. but the bullet bond feature has to do with the window, which was another column with the dates and the length of those dates were the same. 1 year or something, i think. i hope i’m not blowing smoke
I got confused with all the columns I guess, There were like 5.
and they made the windows the same. and it was all very close… tricky.
cfasf1 you have it right. The wide collar provides the most assurance that the payment schedule (date window) will be met. Selection for bullet s/b widest collar, narrowest window.