The pac tranche that behaves as bullet bond. my answer was pac3 because it was the narrowest. hwever the answer it say its pac 1 . please explain
no, the investor is worried about extension risk, has nothing to do with bullet bonds…since he wants to be protected from extension risk PAC1 has the widest PSA Collar therefore meets his objective…
he did say his objective of bullet corp bond - I just figured since bullet in intermediate matuirty bonds, and payment will be somewhat in the middle (no extension, no contraction). and yes, widest PSA collar is the greatest certainty of recieving payment.
I thought bullet bond is when payment is all at the end??? like zero coupon bond!!!
It was bullet bond, you’re not looking for the narrowest PSA range, the narrowest PAC window replicates the bullet bond when combined with the widest PSA collar.
i’m reading on page 49 schweser - bullet with high concentration of bonds at some intermediate maturity. Is there some other kind i’m not aware of? Also, Sutherland does say he want principal repayment that of a bullet corporate bond.
widest PAC collar, narrowest expected principal repayment
well I read the question completley wrong but got the answer correct LOL so Bullet bond = high concentration @ intermediate maturity…thanks what other are there? Barbel: at two ends of maturity, LT and ST and i know there was another one…
Ladder - evenly distributed
so how does the barbel and ladder work? You want to have payments distributed over a long horizon for barbel and a medium horizon for ladder?