Question1:

Answer the following question fixed income securities:

1(i):

The effect on a bond portfolios value of a decrease in yield would be most accurately estimated by using:

(a) the price value of a basis point

(b) both the portfolios duration and convexity

(c) the duration approach

(d) the full valuation approach

1(ii):

A pass-through security is best characterised as

(a) A security with a prorata claim to the underlying pool of assets

(b) A bond backed by real estate

(c) A part of a loan sale

(d) A multi-class mortgage backed bond

1(iii)

An estimate of the price change for an option-free bond caused by a 1% decline in its yield to maturity based only on its modified duration will result in an answer that:

(a) is accurate

(b) is too small

(c) may be too small or too large

(d) is too large

1(iv)

If a mortgage pass through experiences large prepayments early on in the life of the security the result will be that pass through holders will receive _______ than expected cash flows early on and _______ than expected cash flows later on.

(a) Greater; Less

(b) Less; Greater

(c) Greater; Greater

(d) Less; Less