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The debt of government-owned corporations is guaranteed by the full faith and credit of the U.S. government.
Why is the maturity of an amortizing bond not a useful measure? How do investors gauge the default risk of a bond issue?
In what sense has the investor in a residential mortgage loan granted the borrower (homeowner) a loan similar to a callable bond?
The Incoterms®2010 rules include 11 trading terms created by the International Chamber of Commerce (ICC)
Why is an assumed prepayment speed necessary to project the cash flow of a mortgage pass through security?
Why is it necessary for a nonagency mortgage-backed security to have credit enhancement? Who determines the amount of credit enhancement needed?
What is the difference between a private label and subprime mortgage backed security? Be sure to mention how they differ in terms of credit enhancement.
Suppose that the portfolio manager plans to hold the bond that is purchased for six years instead of four years.
If interest rates for all maturities change by 50 basis points, what is the approximate percentage change in the value of the portfolio?
For which of these two bonds would it be more appropriate to use modified duration rather than effective duration.
The value of a Treasury security should be based on discounting each cash flow using the corresponding Treasury spot rate. Explain why this is true.
Explain what is meant by the nominal spread and the zero volatility spread? How are they computed?
Answer the following questions about valuing bonds with embedded options using a binomial interest rate tree.
What is the implied forward rate on a one-year zero coupon Treasury three years from now quoted on a bond-equivalent basis?
Construct a confidence interval for the difference in the proportion of women who used oral contraceptives suffering from blood clots.
Briefly, describe the following reimbursement systems and, using the descriptive approach, analyze the risks to providers under each system.
What lessons can be learned from the quantitative risk assessment of prospective payment and capitation contracts?
Of the three approaches, which one do you think would be the most accurate? The easiest to apply in practice?
Can a delivery system with multiple providers have more than one risk pool? Explain your answer. Describe how a typical risk pool works.
Should a business insure itself against all of the insurable risks it faces? Explain your answer. Briefly, describe one common approach to risk management.
Describe how a stop-loss insurance analysis is conducted. What are the two primary types of reserves?
Why do zero-coupon bonds that match the holding period eliminate interest rate risk? How is duration used to immunize debt portfolios?
What is the difference between using derivatives for hedging as opposed to speculation?
Define a call option’s exercise value. Why is the actual market price of a call option usually above its exercise value?
How can futures contracts be used to hedge interest rate risk? Briefly, describe the features of a futures contract.