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As a financial adviser to individual investors, your boss has asked you to write a memo to him so that he can recommend a mortgage-backed bond to a client. The client has a particular corporate bond in mind, but your boss thinks that a pass-through mortgage-backed security would provide a better yield at the same risk level and maturity. The bond that the client is considering is a 7-year, AA-rated bond with a 6.75% coupon. When it matures, the proceeds will be used for and are matched exactly with the cost of his daughter’s college education, which will be paid in one lump sum. The bond your boss favors is a pass-through MBS (also 7-year with an AA rating), featuring a 7.15% coupon. Your economic research department just released a research report that predicts that interest rates are going to decline over the next several years to historical lows. 

Write a memo to your boss of at least 300 words that provides the following:

  • Your recommendation
  • At least 3 reasons you considered to develop your recommendation

Shortly after you were given this task, you became aware of a new CMO issue that has an AA-rated, 7-year Class A VADM tranche, with a 7.00% coupon that uses a Z bond to protect against prepayment and extension risk. Write a second memo to your boss of at least 300 words that offers the following:

  • What the acronym VADM means in the context of MBS
  • A description of the new CMO tranche and how it may or may not be a better choice for the client than the corporate bond and the MBS that your boss initially recommended

Brigham, Daves. Chapters 12-14.


Due Date:

8/17/2014 11:59:59 PM (14 Days)




Deliverable Length:

1-2 pages



Grading Criteria

Content Development: Demonstrates use of appropriate, relevant, and innovative content. All requirements of the assignment are met.


Critical Analysis: Demonstrates ability to evaluate, integrate, and critique a wide range of options, beliefs, abstract ideas, and data to inform judgment, identify and solve problems, and where appropriate, propose new hypotheses.


Research and Information Literacy: Demonstrates selection and use of high-quality, credible, and relevant sources to develop ideas that are appropriate to the assignment. Sources are consistently cited according to required documentation.


Grammar, punctuation, spelling and other mechanics of the English language: Demonstrates correct use of grammar, spelling, punctuation, and other mechanics of the English language.



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