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1) Assume you purchase a 10 year 7% annual bond for= $960. Assume you hold bond for five years and sell it for $1060. Supposing you reinvested coupon payments you receive at 6%, what was your total return?

2) Assume you buy a five year 5% annual bond which has a YTM of 6%. Determine the duration of this bond? Evaluate the change in price of this bond for 50 basis point increase in YTM. Evaluate the change in price of this bond for a 50 basis point decrease in YTM.

3) What do you mean by collateralized mortgage obligations? How they are different from pass through securities? Why do some economists say CMOs are one of the reasons for current financial crisis?

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