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NEW QUESTION: 1
Mary Pierce, CFA, has just joined The James Group as a fixed income security analyst. Pierce has taken over for Katy Williams, who left The James Group to start her own investment firm. Pierce has been reviewing Williams's files, which include data on a number of securities that Williams had been reviewing.
The first file had information on several different asset-backed securities. A summary schedule that Williams had prepared is shown in Exhibit 1.
Exhibit 1: Summary Schedule

The second file included the following schedule of information relating to a specific CMO thai Williams had been considering. Exhibit 2 reflects the results of a Monte Carlo simulation based on 15% volatility of interest rates. This security is stil! available, and Pierce needs to evaluate the investment merit of any or all of the listed tranches.

A third file contained notes Williams had laken at a seminar a couple of months ago on valuing various types of asset-backed and mortgage-backed securities. These notes included the following comments that Pierce found interesting:
"Cash flow yield (CFY) is one method of valuing mortgage-backed securities. An advantage of the CFY is that it does not rely on any specific prepayment assumptions. An important weakness of CFY is the assumption that interim cash flows will be reinvested at the CFY. This is rarely true for mortgage-backed securities."
"Cash flow duration is similar to effective duration, but its weakness is that it fails to fully account for changes in prepayment rates as cash flow yields change. Empirical duration suffers two disadvantages as a measure of interest rate exposure: reliance on theoretical formulas and reliance on historical pricing data that may not exist for many mortgage-backed securities."
"The recent increase in the default rate for subprime adjustable rate mortgages can be traced to the structure of these loans. The negative amortization feature of these loans basically gave the borrower an at-the-money call option on their property. Once the property decreased in value, this call option was worthless, and the borrower had no incentive to make any additional payments." Williams's comments regarding the increasing default rates for subprime adjustable rate mortgages were:
A. correct.
B. incorrect, because the negative amortization feature is actually an at-the-money put option.
C. incorrect, because the true problem was the positive amortization of these loans, and borrowers' inability to make their scheduled payments.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
Williams is correct. The teaser rates typical to these subprime mortgage loans created a negative amortization where the early months' payments did not adequately cover the amortization of interest and principal. The borrower counted on an increase in the home value to make the loans worthwhile. In essence, the borrower was holding a call option on the value of the house, with a strike price equal to the value at the date of the initial loan. If the value of the home declined, the call option was worthless. The borrower would then be better off defaulting on the loan and not incurring the loss on the underlying property. (Study Session 14, LOS 52.c)

NEW QUESTION: 2
Is a risk management activity that may lead to risk reduction?
A. Evaluation
B. Analysis
C. Inspection
Answer: C

NEW QUESTION: 3
You have configured mycorp.com as an Amazon route 53 private hosted zone for Amazon virtual private cloud. Amazon elastic compute cloud (EC2) instances in your eu-east-1 virtual private cloud successfully resolve to internal.mycorp.com. You are extending your infrastructure to a VPC in eu-west-1. Why are Amazon EC2 instance in eu-west-1 unable to resolve to internal.mycorp.com?
A. The DHCP options set in eu-west-1 requires the private hosted zone name server IP addresses
B. The enableDnsHostnames attribute of the VPC in eu-west-1 should be set to false
C. The VPC in eu-west 1 is not associated to the private hosted zone
D. A second private hosted zone for Amazon VPC is requires for eu-west-1
Answer: A

NEW QUESTION: 4
What are the possible trunking modes for a switch port? (Choose three.)
A. desirable
B. client
C. forwarding
D. auto
E. on
F. transparent
Answer: A,D,E