Question

On July 1, 2013, the FHLMC 30-Year Generic 4% 2012 was analyzed using the Monte Carlo valuation model of FactSet. At the time of the analysis the security’s price was 104.644 with accrued interest of 0.300 (per $100 par value). Summary information about the security is as follows:
The results of a simulation using 200 interest-rate path are reproduced as follows:
YTM (%) 
2.981 
Average Life 
5.307 
Modified Duration 
4.551 
Effective Duration 
4.135 
Effective Convexity 
–1.905 
Partial Duration—6 Month 
–0.088 
Partial Duration—1 Year 
0.097 
Partial Duration—2 Year 
0.516 
Partial Duration—5 Year 
1.500 
Partial Duration—10 Year 
1.806 
Partial Duration—30 Year 
0.304 
Spread Duration 
4.338 
Spread (TRSY) 
1.585 
Z-Spread 
97.232 
OAS (TRSY) 
95.158 
OAS (Libor) 
77.909 
Projected CPR (PB WAVG) 
14.870 
Projected PSA (PB WAVG) 
278.342 
(a) Explain the meaning of each of the measures above.
(b) Given the computed convexity measure, how is this pass-through security expected to perform compared to a comparable Treasury security if the term structure of Treasury rates decreases substantially in a parallel fashion?


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  • CreatedAugust 22, 2015
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