## FMP

mayankmundhra30
Good Student
Posts: 23
Joined: Sat Jun 25, 2016 8:13 am

### FMP

There are some doubts.

1) What is value required to hedge a key rate exposure of \$27.5 with another security with key rate exposure of \$9.75, both having similar face value?
a. 35.45 Incorrect
b. 282.05 Correct
c. 37.25 Incorrect
d. 268.13 Incorrect
F = 282.05 [(27.50/ 9.75)*100]

What is the use of value 100?

2) Empirically, a nominal yield would adjust by more than ____ basis point for every basis point adjustment in real yield.
a. zero Incorrect
b. one Correct
c. ten Incorrect
d. hundred Incorrect

Explain the logic behind this.

3) A Wall Street investor has long exposure in US Treasury bond to the extent of \$50.0 million. The investor hedges his exposure by shorting a US Treasury TIPS (treasury inflation protected security) to the extent of \$44.9 million. Kindly recommend whether the hedge needs to be adjusted if the nominal yield changes by 1.0137 basis points per basis point of real yield change.
b. Sell existing TIPS by \$ 0.62 million Correct
c. Sell existing TIPS by \$ 4.42 million Incorrect

how to do this?

4) Please explain pricipal component analysis?

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

### Re: FMP

Hi Mayank
Principal component analysis (PCA) is a technique used to emphasize variation and bring out strong patterns in a dataset. It's often used to make data easy to explore and visualize.