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The zero-volatility spread is a measure of the spread that the investor would realize over the entire Treasury spot rate curve if a mortgage-backed or asset-backed security is held to maturity. Unlike normal spread, zero-volatility spread, is not a spread of one point on the Treasury yield curve. Zero-volatility spread also known as Z-spread and the static spread, is the spread that will make the price of a security equal to the present value of the cash flows from the mortgage-backed and asset-backed security when discounted at the Treasury spot rate plus the spread. In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the Z-spread. A trial and error method is used in determining the
zero-volatility spread. The difference between the zero-volatility spread and the normal spread depends on the maturity or average life of a structured product, i.e., larger the maturity of the security greater is the difference, and shorter the maturity lesser the difference between both the measures. The shape of the curve also determines the magnitude of the difference between both the spreads. The steeper the curve the greater is the difference.
Stabilization Policies in the AA-DD Model. Suppose the economy of Zion has reached the long run equilibrium (i.e. full employment). Now assume that a best-seller, written by Ne
Q. Basic Methods of Risk Management? Risk is inherent in business and hence there is no escape from the risk for a businessman. However, he may face this problem with greater c
To calculate duration, we need to first obtain the values for V - and V + where V - is the price when the yield decreases by certain number of basis points and V +
Great Pumpkin Farms just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a 16 p
Should a company pursue price hike or focus on increasing sales volume
What does it mean when we say that the correlation coefficient for two variables is -1? What does it mean if this value were zero? What does it mean if it were +1? Correlation is
what is the cost of capital and advantages of it?
Functions of Treasurer:- (1) Cash Management: - It comprises the managing of cash receipts and cash payments of the business. (2) Banking Relations: - It comprises operating
SHAREHOLDER VALUE There are various measures used by market analysts and financial experts to derive the maximum Shareholder Value of a particular company but we would take the
Advantages: It is easy to calculate and catch. With the help of this technique, projects can be ranked in terms of their economic merits without much of complication.
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