• The duration and convexity of 5/1 hybrids with a 2/2/6 cap structure and a 5/2/6 cap structure are very   similar. The differences in caps between these two securities do not create material price risk   differences between these ARMS in the current environment.

• The duration and convexity of 5/1 hybrids are not substantially greater than that of 3/1 hybrids in the   current environment while the OAS difference strongly favors the 5/1 hybrids.

• The nearby balloon inherent in the 3/1 hybrid poses increased call risk to 3/1 investors. This can be   seen by comparing the OAS to maturity and the OAS to balloon for the ARMS.

• The OAS to maturity and balloon are very similar for the 5/1 hybrids. This reflects the fact that the   balloon payment is relatively far in the future for the 5/1 hybrids and indicates that the tail is not the   primary contributor to the OAS of the 5/1 ARMs.