Question #6

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: Q6-7 First in Group
Shared Context
- 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? 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.
Question
Which of the two bonds Woods is considering purchasing has the greater interest rate exposure?
Answer Choices:
A. ARM B, because it has a smaller duration
B. The interest rate exposure cannot determine without a specific measure of convexity
C. ARM A, because it has a larger duration
No explanation available for this question.
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