the duration effect of 10 basis point increase with ST rates and 20 basis point decrease with LT rates. answer was 1.5% another questions which portfolio would have the biggest change in price for a parallel shift, answer was II 25 25 50, i think the duration was around 17 or 19, largest of the four. prepayment risk was the least concerned, the others are clearly risks. i forget the other three. (only remeber the ones i listed because i botched the duration figures, go pissed and skipped. went back to it after i went through the rest of the test, calmed down and figured it out.)
richsg21 Wrote: ------------------------------------------------------- > the duration effect of 10 basis point increase > with ST rates and 20 basis point decrease with LT > rates. answer was 1.5% > > another questions which portfolio would have the > biggest change in price for a parallel shift, > answer was II 25 25 50, i think the duration was > around 17 or 19, largest of the four. > > prepayment risk was the least concerned, the > others are clearly risks. > > i forget the other three. (only remeber the ones > i listed because i botched the duration figures, > go pissed and skipped. went back to it after i > went through the rest of the test, calmed down and > figured it out.) thks - i got the 1.5% wrong as my mind went blank. there was a question on the payback to focus on - it mentioned cash flow analysis, asset sales etc - i said CF analysis Another one was about the difference between Swap and Treasury - I think the answer was that the Government did not regulate I can’t remember the last question though
CF was right. did the spread question have an answer that said the swap curve was based on LIBOR, i remember something like that.
richsg21 Wrote: ------------------------------------------------------- > CF was right. did the spread question have an > answer that said the swap curve was based on > LIBOR, i remember something like that. that was the question in derivatives and i put the LIBOR option - don’t know if it’s correct yet though. the swap question was which one is oncorrect…and i put that the gov regulates the swap market or something like that
mcpass Wrote: ------------------------------------------------------- > 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 @ of PM as you mention it here? Doesn’t > ring a bell. seems the last one you mentioned here was just half of the question, can’t remember the other half. also in the AM session, is there one asking swap curve vs treasury curve?
right, LIBOR was derivatives and the Fixed Inc was the swap market is not regulated. thanks
Lumiere_1979 Wrote: ------------------------------------------------------- > #5 am i think is downgrade risk, not prepayment > risk. the bond in question was a non-callable > CORPORATE bond. Prepayment risk applies only to > mortgage-backed securities. Recall that in order > to have a prepayment, you gotta have amortization > of principal. the noncallable part was a trick, > though a smart one, one of the many on the exam. > that’s my two cents. Review pages 7 and 162 of > the cfa book. yep you are correct- HOWEVER, it said which is NOT a risk to be concerned with.
right, i know. i actually fared quite well with fixed inc. - in the morning at least. think i went 6/6, not so much in the afternoon. though
richsg21 Wrote: ------------------------------------------------------- > right, i know. i actually fared quite well with > fixed inc. - in the morning at least. think i went > 6/6, not so much in the afternoon. though think i went 5/6 for both - just can’t remember the last FI question from the morning paper - got the IO q wrong and just said they went up - i was going to choose the other one too.
I still think the answer for the risk question was credit spread risk because the question clearly stated that the bond had a “stable outlook” which means for the next 6 months, there will not be a change in rating for the bond. It was a pretty tricky one though… More than one answer seemed justifiable.
It said non callable corporate - prepayment not much of a risk
“stable outlook” if anything would be related to downgrade risk. credit spread risk would certianly be present - they cannot control their spread to Treasuries or swaps. spreads widen and narrow in the credit market on a daily basis based on the outook of the economy, Fed outlook, uncertainty, etc. Look how much corps widened out vs. swaps over the past year alone.
adb258 Wrote: ------------------------------------------------------- > I still think the answer for the risk question was > credit spread risk because the question clearly > stated that the bond had a “stable outlook” which > means for the next 6 months, there will not be a > change in rating for the bond. It was a pretty > tricky one though… More than one answer seemed > justifiable. A company with solid, stable credit is still exposed to spread risk. AAA securities wided out significantly during the recent credit crisis, just not as much as the back end of the credit curve.
Can you please elaborate the question?
hey folks, when discussing FI, please be clear about which exam book you’re talking about. There are two version of them. For NORTH AMERICA, can someone please elaborate: 1. What was the swap spread question? I remember it was asking whether the swap spread definition is correct or not 2. What was the swap question with “government regulates it or not”? I don’t remember this one.
What is this #1 AM? 50%? and this LT ability? finance03 Wrote: ------------------------------------------------------- > 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?
ohhhh…oh oh o h (i love it when I remember a new one … and even more so because they always seem to be gimmes so + 1 for me!!.. woo-hoo) there was another one, one part I think, where the answer (IMHO) was that swap curve was better b/c it has many more maturity points. I think the above mentioned “gov’t reg’d” option was one of the possible answers on this one.
what was the CMO definition question, didn’t ask if the mortgages paid directly, avoiding the passthrough pool?
my version was also 5050… but as i remember it said the risk " least exposed to…" Lumiere_1979 Wrote: ------------------------------------------------------- > my version was 5050
Lumiere_1979 Wrote: ------------------------------------------------------- > that’s exactly the risk it was most exposed to. > the question asked for risk exposure. it wasn’t > default and it wasn’t credit spread. Lumiere - I remember the question to be “least risk” or something like that. Since the company’s financials are solid, etc., I thought downgrade risk was the least risk of all.