SS 16. Fixed Income Analysis of Risk Flashcards
In a securitization, the seller of the pool of securitized assets is the:
Depositor
The lower and upper PSA prepayment assumptions are called the:
Initial PAC collar
PAC stands for:
planned amortization class
When interest rates rise, the duration (increases/decreases)
Decreases
Proceeds for repaying securitized bonds come from the:
cash flows of the underlying financial assets.
Which type of bond is preferred by investors in a falling interest rate environment?
A floored floating-rate note
A bond that makes coupon payments in one currency and pays the par value at maturity in another currency is called:
A dual currency bond
Bonds with a higher duration:
Are _____ dated
Have a _____ coupon
Have a _____ yield
Are longer dated
Have a lower coupon
Have a lower yield
What are the Four Cs of credit analysis?
Capacity
Collateral
Covenants
Character
A putable bond exhibits (higher/lower) convexity than a normal option-free bond
Higher
Approximate percentage price change of a bond =
(-)(duration)(change in yield)
All non-callable bonds exhibit ______ convexity
Positive
PSA stands for:
Public Securities Association
‘The risk that an issuers creditworthiness may deteriorate’ defines:
Credit migration risk or downgrade risk
Free cash flow =
Cash flow from operations - capital expenditures
Principal payments associated with credit card receivable-backed securities are:
distributed to investors after the lockout period.
CMO stands for:
Collateralized mortgage obligation
A yield spread over a government
bond is also known as a:
G-spread
What is the risk to senior tranche investors in a collateralized debt obligation (CDO)?
In default, the manager will not earn a return sufficient to payoff investors.
A negative duration gap means the investment horizon is ______ than the Macaulay duration
Greater
If interest rates are low, the convexity of a callable bond will be:
Negative
Convexity of callable bonds will be negative at low yields and positive at high yields.
A synthetic collateralized debt obligation is a CDO backed by a portfolio of:
Credit Default Swaps
What is the formula used to calculate the expected loss on a corporate bond?
Default risk * (1 - recovery rate)
Modified/Effective duration formula:
(price when bond yield drops - price when bond yield rises)
/
2 * bond price * change in yield
