Reading 56: Asset-Backed Sector of the Bond Market-LOS b 习题 center, border, contrast, 2010

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Session 15: Fixed Income: Structured Securities
Reading 56: Asset-Backed Sector of the Bond Market

LOS b: Explain and contrast prepayment tranching and credit tranching.

 

 

 

Prepayment tranching refers to:

A) subdividing an asset or mortgage backed security so some components are exposed to more prepayment risk than others.

B) subdividing a corporate bond so some components pay coupon and others pay principal.

C) subdividing a corporate bond so some components pay earlier coupon payments than others.

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Prepayment tranching refers to when an asset or mortgage backed security is subdivided so some components are exposed to more prepayment risk than others.

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Prepayment tranching is also referred to as:

A) serial tranching.

B) time tranching.

C) credit tranching.

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Prepayment tranching is also referred to as time tranching. Prepayment tranching refers to when an asset or mortgage backed security is subdivided so some components are exposed to more prepayment risk than others.

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The most common form of credit enhancement for asset backed securities is:

A) corporate guarantees.

B) credit tranching.

C) cash reserve funding.

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Credit tranching is the most common form of credit enhancement for asset-backed securities. In credit tranching, bonds are divided into senior and subordinated sections. In this senior-subordinated structure, subordinated bonds absorb losses up to their par value after which losses are absorbed by senior bonds.