Section 4.1.2.2
When such assets as mortgage-backed securities have a contingent claim provision,
explicit or implicit, there is an associated risk. As rates fall, the security might have
coupons halted and principal repaid, which results in reinvestment risk and also limits
any potential upside as would be generated by a non-callable security. In addition, all
fixed-income securities that have fixed rather than floating interest rates are exposed to
interest rate risk because prices move in the opposite direction of rates.
6.) Whitney's secondary trading rationale is best described as:
A. credit-defense trades.
B. sector-rotation trades.
C. structure trades.
Answer = A
"Fixed-Income Portfolio Management – Part I," H. Gifford Fong and Larry D. Guin
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