North South University
FIN 433
Answer the following questions: 3*5=15 marks 1. As a manager of a savings institution, you must decide whether to invest in collateralized mortgage obligations (CMOs). You can purchase interest-only (IO) or principal-only (PO) classes. You anticipate that economic conditions will weaken in the future and that government spending (and therefore g
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Answer the following questions: 3*5=15 marks 1. As a manager of a savings institution, you must decide whether to invest in collateralized mortgage obligations (CMOs). You can purchase interest-only (IO) or principal-only (PO) classes. You anticipate that economic conditions will weaken in the future and that government spending (and therefore government demand for funds) will decrease. Given your expectations, would IOs or POs be a better investment? - CMO process of securitization help the institution reduce prepayment risk and credit risk. If economic condition goes weak in future I think, PO class would be a good option because the firm don’t need to pay interest. It is resold at lower price from face value and when maturity comes holder will get the face value. 2. A ten-year inflation indexed bond has a par value of $10,000 and a coupon rate of 5%. During the first six months since the bond was issued, the inflation rate was 2%. Based on this calculate the coupon payment after 6 m
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