CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A support tranche ______ value when interest rates ______.

I. loses; fall
II. loses; rise
III. gains; fall
IV. gains; rise
Correct Answer: I and II

Support tranches are exposed to both contraction and extension risks.

User Contributed Comments 7

User Comment
katybo got this wrong, forgot extension risk.
danlan2 What is support tranche? Support tranche absorb both risks.
actiger Tricked me! I thought of the same thing but didn't think there could be two answers...
Rchan89 so why would anyone would these support tranches?
rana1970 Because it cheaper to buy compared to other trenches
davidt876 This question makes no sense logically. If interest rates increase increase from 2-3% the value falls. Then interest rates decrease from 3 back to 2%, and the value falls again... So... The value of this asset is perpetually falling to 0, as interest rates constantly change?

I get the point is to relate value back to risks, but this is just stupid
davidt876 Yes I am overreacting because I got a lot wrong in this chapter.. what of it?
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