Two portfolio managers are discussing the investment characteristics of amortizing securities. Manager A believes that the advantage of these securities relative to nonamortizing securities is that because the periodic cash flows include principal repayments as well as coupon payments, the manager can generate greater reinvestment income. In addition, the payments are typically monthly so even greater reinvestment income can be generated. Manager B believes that the need to re-invest monthly and the need to invest larger amounts than just coupon interest payments make amortizing securities less attractive. Whom do you agree with and why?
Answer to relevant QuestionsAssuming the following yields: Week 1: 3.84% Week 2: 3.51% Week 3: 3.95% (a) Compute the absolute yield change and relative yield change from week 1 to week 2. (b) Compute the absolute yield change and relative yield change ...A portfolio manager is considering buying two bonds. Bond A matures in three years and has a coupon rate of 10% payable semiannually. Bond B, of the same credit quality, matures in 10 years and has a coupon rate of 12% ...The following excerpt is taken from an article titled “Denver Investment to Make $800 Million Treasury Move,” that appeared in the December 9, 1991, issue of BondWeek, p. 1: “Denver Investment Advisors will swap $800 ...Calculate the requested measures in parts (a) through (f) for bonds A and B (assume that each bond pays interest semiannually): (a) What is the price value of a basis point for bonds A and B? (b) Compute the Macaulay ...State why you would agree or disagree with the following statement: For a 1-basis point change in yield, the price value of a basis point is equal to the dollar duration.
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