CAS Exam 9 Spring 2016, Question 12
Study guide: Exam 9
Given the following securities:
- Fixed maturity bond
- Callable bond
- Mortgage-backed security
Part a (0.75 points)
Draw the price-yield curve for each security. Where appropriate label axes, call price, and principal balance.
Part b (0.75 points)
Briefly describe the convexity of each security.
Part c (0.5 points)
Discuss the difference between the features that cap the maximum price of a callable bond and the features that cap the maximum price of a mortgage-backed security.
No current syllabus covers this question; it is kept for the record.
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