fall16q05

pdf

School

University of Pennsylvania *

*We aren’t endorsed by this school

Course

238

Subject

Economics

Date

Nov 24, 2024

Type

pdf

Pages

6

Uploaded by blochjacob

Report
FIFTH QUIZ FNCE 238/738 November 9, 2016 WRITE ALL ANSWERS ON THE TEST. IF YOUR ANSWER CONTINUES ON THE BACK, MAKE A NOTE OF IT ON THE FRONT. 45 PTS / 25 MINUTES NAME:_____________________________________________ SECTION (12, 1:30 or 3):__________________________________
1. Here’s the summary of a recent Fannie Mae deal: a. (5 pts) Which classes would be considered “toxic waste”, i.e. securities that are byproducts of making other securities safer? Why? b. (5 pts) Looking just at classes DF and DS, how would their market values be affected by a sudden large increase in prepayment? Why?
2. (10 pts) Consider a 2016 auto-loan securitization such as the Carmax deal we went through. Suppose the economy goes into a recession in 2018, leading to many auto-loan defaults. In what sense will the free cash flow from earlier months help the notes issued avoid default? Will any of this cash flow not help the notes avoid default? Explain.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
3. (5 pts) From ETF Strategy about a new offering: The fund tracks the Barclays US MBS Index which is based on a universe of individual fixed rate pools, providing some diversification across factors such as interest rate sensitivity and prepayment risk. However, investors should be aware that mortgage backed securities do contain unique characteristics compared to other bond instruments. In particular, they tend to exhibit negative convexity… Show graphically what is meant by the “negative convexity” of mortgage-backed securities. Why is it important for investors to be aware of it?
4. A stock, currently trading at 6, will go to 8 or 5 in the next six months, and if it goes to 8, then it will go to 11 or 7 in the 6 months after that, and if it goes to 5, it will go to 7 or 3 in the next six months after that. All price changes have probability ½. So the binomial tree looks like this: The risk-free rate is constant at 0%. a. (10 pts) What is the price today of a European call option, with strike price 6, expiring in one year? b. (5 pts) What is the price of the analogous put with a strike price of 6?
5. (5 pts) What, exactly, does it mean to say that the SMM of a mortgage pool is 2%? And in terms of SMM, what have we seen regarding the ability of financially distressed households alleviating the distress by refinancing mortgages at today’s lower rates?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help

Related Documents

ECS2602-TESTS-BANK-1.docx.doc.docx
Screenshot 2023-12-13 at 7.30.34 PM.png
Exploring the Impact of Online Payments on Household Finances
IMG_8270.png
IMG_0351.jpeg
Ga state license practice exam (8).pdf
QSWE.pdf
ECS 4580 Trade and Multinational Enterprises.docx
Student question.docx
Assessment 10_ Attempt review.pdf
Demand for Insurance v1Oct2023.xlsm
Module One Video Check-In.pptx
Recommended textbooks for you
Text book image
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning
Text book image
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Text book image
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Microeconomics A Contemporary Intro
Economics
ISBN:9781285635101
Author:MCEACHERN
Publisher:Cengage
SEE MORE TEXTBOOKS
Recommended textbooks for you
Text book image
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning
Text book image
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Text book image
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Microeconomics A Contemporary Intro
Economics
ISBN:9781285635101
Author:MCEACHERN
Publisher:Cengage
SEE MORE TEXTBOOKS