Ro”Morgage-Backed Securities,” Andreas Fuster, David Lucca, and James Vickery, Federal Reserve Bank of New York Staff Reports, no. 1001, February
Write two paragraphs describing the functioning of TBA market, its size and importance
2. What is the difference between the coupon-bearing curve and the spot (zero-coupon) curve?
a)
If the coupon curve is upward sloping, is the spot curve likely to be above or below the zero-coupon curve? Why?
b) If the coupon curve is downward sloping, is the spot curve likely to be above or below the zero-coupon curve? Why?
3. In the following table, derive the 1Y rate (shown below) forward for 2,3,4,5 years. Derive the 2Y rate 3 years forward (not shown) – show
Requirements: page
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