Chapter 8

Question 1

Asset Backed Security

Answer 1

A security whose value and income are collateralized by a group of assets, usually bank receivables.

Question 2

The _____ tranche has the most predictable cash flow and maturity.

Answer 2

Planned Amortization Class

Question 3

The _____ tranche has the most unpredictable cash flow and maturity.

Answer 3

support or companion

Question 4

A 3-month Treasury bill is issued at a discount to yield 9.5%, and a corporate bond is issued to yield 9.5%. The bond is to mature in 10 years. If both are offered on the same day on a bond equivalent yield basis, which of the following statements is TRUE?
A) The bill has a greater yield than the bond
B) The bond has a greater yield than the bill
C) The yield is the same for both
D) The bond equivalent yield and tax equivalent yield are equal

Answer 4

A) The bill has a greater yield than the bond

Question 5

All of the following are advantages of CMOs, EXCEPT:
A) There are a variety of bond classes available
B) They produce tax-free interest
C) They generally have AAA ratings
D) They are available in denominations as low as $1,000

Answer 5

B) They produce tax-free interest

Question 6

If interest rates increase, which of the following securities has the most price change?
A) A Treasury note trading at a discount
B) A Treasury note trading at a premium
C) A Treasury bond trading at a discount
D) A Treasury bond trading at a premium

Answer 6

C) A Treasury bond trading at a discount