Question #76

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: 25

Status: Unattempted

Part of Context Group: Q75-76
Shared Context
- If the spot-rate curve experiences a parallel downward shift of 50 basis points: A) Portfolio 1 will experience the best price performance. B) all three portfolios will experience the same price performance. C) Portfolio 3 will experience the best price performance.
Question
Is Berg correct about the specified change in yield needed to obtain an accurate estimate of the effective duration and effective convexity of a callable bond using a binomial model?
Answer Choices:
A. No, because the specified change in yield can be larger than, smaller than, or equal to the OAS
B. No, because the specified change in yield must be larger than the option-adjusted spread (OAS)
C. No, because the specified change in yield must be smaller than the OAS
No explanation available for this question.
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