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Research Questions: Mortgage-backed securities may have negative convexity which cushions the increase in price when interest rates...

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Accounting

  1. Research Questions:
    1. Mortgage-backed securities may have negative convexity whichcushions the increase in price when interest rates decline. Explainthe reason.
    2. Callable bonds may have negative convexity. Explain thereason.
    3. Positive convexity is said to be working in the investor’sfavor. Explain the reason.
    4. What features of a bond affects its convexity? Explainclearly.
    5. What does “bond ladder” mean in the context of fixed-incomeportfolio management? What is the purpose of “bond laddering”?
    6. The practitioners also call duration as the “first derivative”.Why?

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