1．A $350 million collateralized debt obligation (CDO) was recently issued by a large Wall Street firm. The portfolio manager will actively manage the underlying assets, and will sell assets periodically in order to generate the cash flow necessary to pay the CDO’s tranches as outlined in the prospectus. This type of CDO is most appropriately described as a:

A)   synthetic CDO.

B)   cash flow CDO.

C)   arbitrage-driven cash CDO.

D)   market value CDO.

2．Which of the following statements regarding collateralized debt obligations (CDOs) is least accurate?

A)   A CDO’s collateral pool will typically contain some combination of fixed-rate and floating-rate debt instruments.

B)   The main purpose behind an arbitrage-driven cash CDO is to capture the spread between the return on the collateral and their funding costs.

C)   In a synthetic CDO, the bondholders assume the economic risk of the underlying assets, but do not have legal ownership of them.

D)   In the market today, the majority of cash CDO issued are balance sheet-driven.

3．Which of the following statements is least likely to be considered an advantage generally associated with collateralized debt obligations?

A)   The senior tranche of a CDO provides an attractive fixed-rate vehicle for fixed-rate investors.

B)   Certain assets and their associated funding can be removed from an entity’s balance sheets and placed in a CDO.

C)   The spread between an asset’s return and the associated cost to finance the asset can be “locked-in” through the issuance of a CDO.

D)   Through the issuance of a CDO, an issuer can maintain legal ownership of the underlying assets but can transfer the economic risks to an investor.

答案和详解如下：

1．A $350 million collateralized debt obligation (CDO) was recently issued by a large Wall Street firm. The portfolio manager will actively manage the underlying assets, and will sell assets periodically in order to generate the cash flow necessary to pay the CDO’s tranches as outlined in the prospectus. This type of CDO is most appropriately described as a:

A)   synthetic CDO.

B)   cash flow CDO.

C)   arbitrage-driven cash CDO.

D)   market value CDO.

The correct answer was D)

The manager of a market value CDO will actively manage the portfolio to generate sufficient cash flows. This is in contrast to a cash flow CDO, where the portfolio is structured at inception in such a way that its principal and interest payments can pay the tranches and trading profits will not be needed to support the cash flows of the CDO.

2．Which of the following statements regarding collateralized debt obligations (CDOs) is least accurate?

A)   A CDO’s collateral pool will typically contain some combination of fixed-rate and floating-rate debt instruments.

B)   The main purpose behind an arbitrage-driven cash CDO is to capture the spread between the return on the collateral and their funding costs.

C)   In a synthetic CDO, the bondholders assume the economic risk of the underlying assets, but do not have legal ownership of them.

D)   In the market today, the majority of cash CDO issued are balance sheet-driven.

The correct answer was D)

The majority of cash CDOs issued are arbitrage-driven, in which the issuer is trying to capture the spread between the underlying assets and the costs to finance them.

3．Which of the following statements is least likely to be considered an advantage generally associated with collateralized debt obligations?

A)   The senior tranche of a CDO provides an attractive fixed-rate vehicle for fixed-rate investors.

B)   Certain assets and their associated funding can be removed from an entity’s balance sheets and placed in a CDO.

C)   The spread between an asset’s return and the associated cost to finance the asset can be “locked-in” through the issuance of a CDO.

D)   Through the issuance of a CDO, an issuer can maintain legal ownership of the underlying assets but can transfer the economic risks to an investor.

The correct answer was A)

The senior tranche of a CDO will most likely be structured with a floating-rate coupon, and the mezzanine tranches will have a fixed-rate payment.