Question

In: Finance

Which of the following is the least likely reason for a corporation to raise funds via...

Which of the following is the least likely reason for a corporation to raise funds via securitization rather than bonds:

a)
To diversify funding sources.

b)
To receive tax benefits.

c)
To potentially reduce funding costs.
Which party to a securitization deal is known as a depositor?

a)
The issuing special purpose vehicle (SPV).

b)
The intermediate special purpose vehicle (SPV).

c)
The custodian of the collateral
In a conventional, one-step securitization deal, the special purpose vehicle (SPV) is responsible for the:

a)
issuance of the asset-backed securities.

b)
collection of payments from the borrowers.

c)
recovery of underlying assets for delinquent loans.
Which if the following most completely and accurately describes the cash flows for an auto loan-backed security?

a)
Interest

b)
Interest, scheduled principal, and prepayments

c)
Interest and scheduled principal.
What is the primary motivation for issuing asset-backed securities for a firm that wants to raise funds?

a)
Credit enhancement

b)
Potential reduction in funding cost

c)
Creation of special purpose vehicle
Assume that 41 months after the origination of an asset backed security the single-monthly mortality rate (SMM) is 3.3%. The absolute prepayment speed (ABS) for this security is closest to:

a)
ABS = 2.93%

b)
ABS = 0.39%

c)
ABS = 1.42%

Which of the following statements most accurately describes a revolving period?

	a)	A revolving period is the period during which credit card receivables-backed securities do not distribute principal payments to bondholders.
	b)	A revolving period is only relevant for securitized securities that use amortizing loans as collateral.
	c)	A revolving period is the time over which asset-backed securities may be called.

In a securitization, a special purpose vehicle (SPV) is responsible for the:

a)
Issuance of the asset-backed securities.

b)
collection of payments from the borrowers.

c)
recovery of underlying assets for delinquent loans.

Which of the following is NOT TRUE regarding automobile loan-backed securities?

	a)	The cash flows to automobile loan-backed securities include scheduled monthly interest payments and principal repayments, and prepayments.
	b)	Prepayments for auto loan-backed securities are measured in terms of the absolute prepayment rate (ABS).
	c)	Prepayments risk is a significant risk for automobile loan-backed securities investors.

During the lockout period for a credit card receivable-backed deal, the cash flow that bondholders will receive include:

a)		only principal payments collected from the collateral pool.
b)		only finance charges and fees collected from the credit card accounts in the collateral pool.
c)		no cash flows because all cash flows generated by the collateral pool are reinvested.

Solutions

Expert Solution

Answers-

Q 1)

The correct Option is b. To receive tax benefits is not a reason for a corporation to raise funds via securitization rather than bonds.
The options a and c are the reasons.
Given below are all the reasons

The reasons for a corporation to raise funds via securitization rather than bonds

1) To reduce funding costs
2) To diversify funding source
3) To accelerate earnings for financial reporting purposes, and
4) To get relief from capital requirements.

Q 2)

The correct Option is b. The intermediate special purpose vehicle (SPV)

In general there is an intermediate SPV that acts a bridge between the Originator (issuing SPV) and investors.

The other Options a and c incorrect.

Q 3)

The correct Option is a. Issuance of asset backed securities.
The SPV issues securities ( asset backed) to the investors

The option b and c are incorrect. The Servicer is responsible for collecting loan payments from borrowers and remitting these payments to the issuer for distribution to the investors.

Q 4)

The correct option is b. Interest, scheduled principal, and prepayments.

Auto loans ABS include monthly interest, principal payment, and prepayment.

The Option a and c are incorrect.

NOTE- Kindly put other questions in separate posts

jeff jeffy answered 1 year ago

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Subjects

a)		To diversify funding sources.
b)		To receive tax benefits.
c)		To potentially reduce funding costs.

	a)	The issuing special purpose vehicle (SPV).
	b)	The intermediate special purpose vehicle (SPV).
	c)	The custodian of the collateral

	a)	issuance of the asset-backed securities.
	b)	collection of payments from the borrowers.
	c)	recovery of underlying assets for delinquent loans.

	a)	Interest
	b)	Interest, scheduled principal, and prepayments
	c)	Interest and scheduled principal.

	a)	Credit enhancement
	b)	Potential reduction in funding cost
	c)	Creation of special purpose vehicle

	a)	ABS = 2.93%
	b)	ABS = 0.39%
	c)	ABS = 1.42%