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Research Questions: Mortgage-backed securities may have negative convexity which cushions the increase in price when interest...

  1. Research Questions:
    1. Mortgage-backed securities may have negative convexity which cushions the increase in price when interest rates decline. Explain the reason.
    2. Callable bonds may have negative convexity. Explain the reason.
    3. Positive convexity is said to be working in the investor’s favor. Explain the reason.
    4. What features of a bond affects its convexity? Explain clearly.
    5. What does “bond ladder” mean in the context of fixed-income portfolio management? What is the purpose of “bond laddering”?
    6. The practitioners also call duration as the “first derivative”. Why?

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