Question #8

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: 3

Status: Incorrect

Correct Answer: A

Your Answer: B

Part of Context Group: Q8-9 First in Group
Shared Context
- Matrix also currently has investments in several ABS. Which of the following spread measures is most appropriate in the analysis of ABS backed by credit card receivables? A) Monte Carlo simulation model, because representative paths can be utilized. B) Z-spread, because credit card ABS have no prepayment option. C) OAS, because the cash flows are interest rate path dependent. Alnoor Hudda, CFA, is valuing two floaters issued by Mateo Bank. Both floaters have a par value of $100, three year life and pay based on annual MRR. Hudda has generated the following binomial tree for MRR. 1-year forward rates starting in year: 0 1 2 2% 5.7798% 6.0512% 3.8743% 4.0562% 2.7190%
Question
Value of a capped floater with a cap of 4% is closest to:
Answer Choices:
A. $96.71
B. $97.38
C. $98.70
No explanation available for this question.
Actions
Practice Flashcards