fixed income query yield volatility

deepakkrkanodia
Finance Junkie
Posts: 49
Joined: Thu Aug 09, 2012 4:45 pm

fixed income query yield volatility

Postby deepakkrkanodia » Wed Sep 19, 2012 12:37 pm

Q The effects of decrease in interest rate(yield) volatility on the market yield of a debt security with a prepayment option and on a debt security with put option are most likely

1) prepayment option increase and put option decrease
2) prepayment option decrease and put option increase
3) prepayment option decrease and put option decrease

QUERY: sir cannot understand this question at all. plz explain what this question is comprehending in simple terms.
its answer is 2 i.e. prepayment option decrease and put option increase is the answer. plz explain in detail

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: fixed income query yield volatility

Postby content.pristine » Thu Sep 20, 2012 11:35 am

Hi Deepak,

The question is slightly incomplete.
They are basically asking how:
1) A prepayment option affects the value of a debt security? (ans: decreases its value)
2) A put option affects the value of a debt security? (ans: increases its value)

Hope this helps..

8-)

deepakkrkanodia
Finance Junkie
Posts: 49
Joined: Thu Aug 09, 2012 4:45 pm

Re: fixed income query yield volatility

Postby deepakkrkanodia » Fri Sep 21, 2012 2:01 pm

THX FOR ALL ANS

REGARDS

DEPPAK


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