1) Suppose we have a 30-year MBS with a modified duration of 3.00 years priced at $107.62. If interest rates decline by 100bps the price increases to $110.94 and if interest rates increase by 100bps the price falls to $103.41. What is the effective duration of this security?

a) 3.50 years

b) 4.25 years

c) 3.10 years

2) A bond with 7 years to maturity offers a 5% coupon rate with annual coupons. The bond, with a yield-to-maturity (YTM) of 4% is priced at $106.00 per $100 of par value. The estimated price value of a basis point for the bond is closest to:

a) 0.0648

b) 0.0086

c) 0.062

3) A Collateralized Mortgage Obligation

a) totally eliminates prepayment risk to the investor under all prepayment environments.

b) redistributes prepayment risk among different bond classes.

c) was created to provide investors excess yield opportunities for all of the classes offered.

4) When we think about the monthly cash flows of a mortgage pass-through security, which is true:

a) they are usually stable over time.

b) they replicate the cash flows of the underlying pool of mortgages.

c) they can change when interest rates increase or decrease.

5) If a mortgage pool has a CPR of 8% that means:

a) The pool is expected to experience an 8% default rate during its life.

b) Approximately 8% of the outstanding mortgage balance at the beginning of the year is expected to be prepaid by the end of the year.

c) Approximately 8% of the pool s expected to be defeased by the end of the year.