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MBS are the most complicated securities that are sensitive to interest rates. The factors that affect the price of MBS are varied and most of them are difficult to model to an accurate degree. Though prepayment behavior is an essential part of any MBS, it actually depends on the economic conditions and the present level of interest rates. Low interest rates may induce borrowers to prepay the mortgage so that they can refinance their property at a lower rate. However, in case of a mortgage pool, each and every house/property owner may prepay when the call option is in the money. In such case, the interest rate is related to the tendency to prepay. Generally, the share of mortgage that is prepaid in a period is inversely related to the level of interest rates.
Explain cross-hedging and discuss the factors determining its effectiveness. Answer: Cross-hedging includes hedging a position in one asset by taking a position in another asse
The annual report and accounts for Astra Zeneca plc and Epistem Holdings plc and other relevant financial information are available in the ‘TMA 02 Resources folder' in the Assessme
Rate duration can be defined as the sensitivity of the change in value to a particular change in spot rate. Every point in a spot rate curve has a rate dura
AIM OF FINANCE FUNCTION The fundamental aims of a modern finance function are: Acquiring enough funds when required at lower cost. Proper use of funds in projects w
It is a well known fact that the value of a financial claim reflects the present value of the cash flows produced by the financial claim. While valuing an MBS an
Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchases bonds
Accrued Payroll was $10,000 and $15,000 at the beginning and end of 20X4, respectively. The payroll expense for 20X4 totaled $520,000. Cash outflow for payroll during 20X4 totaled:
Suppose you are planning to make regular contributions in equal payments to an investment fund for your retirement. Which formula would you use to figure out how much your investme
Market risk as that portion of total variability of return caused by the alternating Forces of bull and bear markets. When the security index moves upward haltingly for a signifi
Honey Well company is contemplating to liberalize its collection effort. It''s present sales are 1000000 and it''s average collection period is 30 days, it''s expected variable c
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