Answer-first summary for fast verification
Answer: d) The POs can have negative duration
A **PO strip** receives only principal payments, so it behaves much like a **deep-discount, zero-coupon-like bond**. Its value rises when rates fall because principal is returned sooner and discounted less heavily. POs are typically sold at a discount because they do not receive interest payments. However, **negative duration** is characteristic of **IO strips**, not PO strips. Therefore the false statement is that POs can have negative duration.
Author: Manit Arora
Ultimate access to all questions.
A
a) PO behaves like a zero coupon bond
B
b) As rates fall, price of PO increases dramatically
C
c) The POs sell at a discount
D
d) The POs can have negative duration
No comments yet.