Fixed Income

Question 1

Credit-Card Receivable Principal Pmts

Answer 1

Not distributed to investors until after Lockout Period

Question 2

Convexity Effect of a equal-sized increase & decrease in IRs

Answer 2

Increase in price > decrease in price

Question 3

Term for Seller of Securitized Assets

Answer 3

• Called the Depositor or Originator

- Because the are depositing the Securitized Assets that will generate CFs, i.e. depositing the collateral

Question 4

Risk to Senior Tranche CDO Investors

Answer 4

That defaults will cause the CDO manager to earn insufficient returns to payoff investors

Question 5

2 Conditions req’d for Realized Horizon Yield to = Original YTM (Option-Free, Fixed Coupon)

Answer 5

1. That Coupons are reinvested at IR = original YTM

2. Bond is sold at a price on constant yield-price trajectory

Question 6

Credit-Card Receivable Collateral

Answer 6

is Non-Amortizing

Question 7

x-year Fwd Rt y-years from now Formula

Answer 7

xFy = [ (1 + Z(x+y))^(x+y) / (1 + Z(y))^(y) ] - 1

Question 8

Equipment Trust Certificates

Answer 8

ETCs - Bonds secured by specific types of equipment/physical assets
-e.g. Maersk bonds backed by shipping containers