Question

In: Finance

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

  1. 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.

  2. 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

  3. 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.

  4. 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.

  5. 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

  6. 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%

  7. 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.

  8. 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.

  9. 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.

  10. 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


Related Solutions

(35) Which of the following is LEAST likely to be a large-scale USE of borrowed funds...
(35) Which of the following is LEAST likely to be a large-scale USE of borrowed funds by businesses? (a) capital expenditures; (b) financing of mergers and acquisitions; (c) repayment of revolving credit; (d) share buybacks and dividend payouts. (37) From among the following, a simplified examination of funding for investment suggests that the most expensive source typically is: (a) retained earnings; (b) bond issuance; (c) credit in the form of bank loans; (d) issuance of new shares of stock. (38)...
3. Which is least likely to be the reason for resistance to major changes in job...
3. Which is least likely to be the reason for resistance to major changes in job content and procedures by people who have been doing the job with moderate success for many years? a.​concern about their future job security in the organization ​b.​concern about not being able to adjust to the necessary changes ​c.​concern about the high cost to the organization of making the changes ​d.​a belief that the proposed changes are unnecessary
1.4. Which of the following is not likely to be a reason for investors to use...
1.4. Which of the following is not likely to be a reason for investors to use the global capital market? A. They have a higher cost of capital as compared to purely domestic capital markets. B. They have a much wider range of investment opportunities than in a purely domestic capital market. C. They can diversify their portfolios internationally. D. They can reduce their risk through portfolio diversification to below what could be achieved in a purely domestic capital market.
2-Which of the following is NOT a reason that people tend to deposit their funds with...
2-Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other​ individuals? A.asymmetric information problems B.moral hazard problems C.asset aversion problems D.adverse selection problems 3-Possession of information by one party in a financial transaction but not by the other party is A.symmetric information. B.financial intermediation. C.informational hazard. D.asymmetric information. 6-What would cause a bank​ run? A.Borrowers feel that they are being charged too high of an...
Which of the following is least likely to be included in the tax constraint for an...
Which of the following is least likely to be included in the tax constraint for an individual investor? a. The federal withholding tax from the individual's employment income. b. The tax liability from a taxable lump sum received as part of an employment contract. c. Property taxes to be paid during the upcoming year from ownership of a beach house. d. Capital gains taxes owed on the sale of a watch worn by Benjamin Franklin.
Which of the following would be most likely to increase the supply of loanable funds and...
Which of the following would be most likely to increase the supply of loanable funds and lead to low interest rates? a. Expansionary monetary policy that resulted in high rates of inflation. b. Constant policy shifts that generate uncertainty and reduce investment. c. Demographic shifts that increase the number of people in age categories with high saving rates relative to the number in age categories with a strong demand for loanable funds. d. Large budget deficits that push the government...
Q33 Which of the following statements is least likely to lead to a conclusion that the...
Q33 Which of the following statements is least likely to lead to a conclusion that the taxpayer was undertaking the mere realisation of a capital asset? a. The land was surplus to the taxpayer’s needs in carrying on the taxpayer’s manufacturing business. b. The taxpayer set up their own on-site sales office to assist with the sale of the blocks of land. c. The taxpayer developed the land to the extent necessary to get local council approval and no more....
1. The Federal Open Market Committee is planning to raise the Federal Funds rate at least...
1. The Federal Open Market Committee is planning to raise the Federal Funds rate at least twice this year. In light of current events is this a good idea?
Which of the following three situations is least likely to occur at the same time as...
Which of the following three situations is least likely to occur at the same time as the other two situations? Why? a-Real GDP is less than potential GDP. 
 b-An economy in a strong, 5-year expansion. 
 c-An unemployment rate above the natural rate of unemployment.
which of the following is least likely to be included in accumulated other comprehensive income as...
which of the following is least likely to be included in accumulated other comprehensive income as a component of stockholders equity? a. foreign currency transaction gain. b. net unrealized changes in the value of available for - sale securities. c. net gain or loss from derivative cash flow hedged. d. Pension plan prior to service cost adjustment.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT