Evil EOC - Reading 17, #3

CFA Level III Economics
#1

Just a rant about an EOC question I deem unfair; hopefully stuff like this won’t be on the exam. From #3:

>10-year MBS prepayment risk spread (over 10-year Treasuries)a 95 bps

>aThis spread implicitly includes a maturity premium in relation to the 1-year T-note as well as compensation for prepayment risk.

The spread is either over 10 year Treasuries, or over the 1 year T-note. It can’t be over both, because the 10 year Treasury has a spread over the 1 year T-note. You’re supposed to somehow deduce they meant a spread over 1 year T-note. Bleh.

#2

This is the point: the spread of the 10-year T-Note has a spread over the 1-year T-Bill: that spread is the maturity premium to which they refer.

(Did they really refer to the 1-year as a T-_ Note _?)