Question #5

Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options

PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options.pdf

Page: 2

Status: Incorrect

Correct Answer: A

Your Answer: C

Part of Context Group: Q5-7 First in Group
Shared Context
- Woods is most likely resistant to the zero-volatility spread because the spread: A) only considers one path of interest rates, the current Treasury spot rate curve. B) fails to consider price risk, which is uncertainty regarding terminal cash flows. C) does not indicate how much of the spread reflects the significant prepayment risk associated with MBS.
Question
In general, the investment team at Matrix attempts to buy "cheap" securities because they are undervalued on a relative basis. What is a characteristic of a "cheap" security for a given Z-spread and effective duration?
Answer Choices:
A. High OAS relative to the required OAS and high option costs
B. High OAS relative to the required OAS and low option costs
C. Low OAS relative to the required OAS and low option costs
No explanation available for this question.
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