Question: Why Callable and Puttable bonds cashflow is not certain?
Answer: In case of - Callable bond borrower can anytime call the bond. - Puttable, any time investor can put the bond And for that call date or put date is not known in advance. Hence, cashflow is not certain.
Question: For MBS and ABS why it is difficult to determine the future cashflow?
Answer: In case of MBS and ABS there are possibilities of pre-payment and that can be any random date. Hence, their cashflow is not in advanced.
Question: What do you mean by required yield?
Answer: Any investor who is looking for a yield by investing in a particular bond is known as required yield. And to determine the required yield an investor use the comparable bond in the market. Which is of the same feature and credit quality and maturity.
Question: Why it is considered that effective annual interest rate is higher than annual interest rate in case of interest is paid semi-annually?
Answer: Because usually, whatever interest rates are expected those are specified in the annual interest rate. But the actual cashflows are semi-annual and which results in the effective annual interest rate is high. You can assume cashflow received at six months would be re-invested and which can fetch additional return.