Reading 64: Overview of Bond Sectors and Instruments - LO

答案和详解如下：

1.The risk that relates to the amount and timing of cash flows from a mortgage is known as:

A)    prepayment risk.

B)    default risk.

C)    liquidity risk.

D)    credit risk.

The correct answer was A)

Default risk is the risk that the borrower will not pay back the amounts borrowed. Liquidity risk deals with the ability to sell a security easily at a fair price. Credit risk is the risk that the firm can pay debt obligations.

2.When a prepayment is less than the entire outstanding principal amount it is called:

A)    securitized.

B)    prepayment risk.

C)    curtailment.

D)    net interest.

The correct answer was C)

Curtailment is when the prepayment is not for the entire amount. Prepayment risk is the risk that relates to the amount and timing of cash flows from a mortgage.

3.A payment made that is in excess of the required monthly mortgage payment is called:

A)    curtailment.

B)    prepayment risk.

C)    securitized.

D)    prepayment.

The correct answer was D)

This is the definition of prepayment. Curtailment is when the prepayment is not for the entire amount. Prepayment risk is the risk that relates to the amount and timing of cash flows from a mortgage.

4.Which of the following statements concerning mortgage-backed securities is TRUE?

A)    Curtailment of a mortgage is a prepayment of less than the full principal.

B)    As rates rise, mortgage-backed security holders face reinvestment risk.

C)    Mortgage-backed securities typically have substantial credit risk.

D)    Collateralized Mortgage Obligations (CMOs) prioritize the interest payments on mortgages to different sets of investors.

The correct answer was A)

Curtailment of a mortgage is a prepayment of less than full principal. The other statements are false. Holders of mortgage-backed securities face reinvestment risk as rates decline. Mortgage-backed securities typically have little credit risk because they are issued by agencies of the U.S. government. Also, CMO’s prioritize the principal payments on mortgages to different sets of investors – all tranches receive interest payments, but each successive tranche does not receive principal payments until the first is paid off.

5.If a prepayment of principal is for an amount that is less than the full outstanding balance of the loan, it is know as a(n):

A)    participation.

B)    intermediate payment.

C)    net interest amount.

D)    curtailment.

The correct answer was D)

If a prepayment of principal is for an amount that is less than the full outstanding balance of the loan, it is know as a curtailment.