26-89 Why Do Garbage Class Bonds Often Have a Negative

question 17

Multiple Choice

26-89 Why do garbage class bonds often have a negative duration?

• A)The value of the returns in this bond class increases when interest rates increase.
• B)It gives the rights to collateralization.
• C)Bond values fall with interest rate increases.
• D)It gives rights to reinvestment income on the cash flows in the CMO trust.
• E)Siignificant risk premium required by the uninsured depositors.

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Definitions:

Discharge Pattern

The variation in the volume of water that flows in a stream or river over time.

Hydrograph

A chart that illustrates the change in discharge rate over time at a particular location in a river, or any other flow-carrying channel or conduit.

Increases

The act or process of becoming larger or greater in size, amount, number, or degree.

Susceptible to Erosion

A condition describing materials or landscapes that are easily worn away or removed by the action of water, wind, ice, or human activities.