ikoreaii

Support for the revenue bonds comes from:

A) the gross revenues of the underlying project.

B) the net revenues of the underlying project.

C) property taxes based on the project.

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Revenue bonds are serviced by the net income generated from specific income-producing projects (e.g., toll roads).

ikoreaii

Which of the following statements accurately describes direct and dealer paper?

A) Direct paper tends to incur more issue costs versus dealer paper.

B) Direct paper is the same as dealer paper.

C) The majority of direct paper issuers are financial companies.

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Dealer paper is issued via agents, whereas direct paper is issued directly by the issuer. Since it is issued directly by the company, direct paper is less expensive to issue.

ikoreaii

Which of the following attributes does NOT describe commercial paper?

A) The most common maturity is 50 days or less.

B) All commercial paper must be registered with the Securities and Exchange Commission (SEC).

C) It is typically issued as a zero coupon instrument.

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According to the Securities Act of 1933, commercial paper must be registered with the SEC. However, there are special provisions that exempt commercial paper form registration if the maturity is less than 270 days.

ikoreaii

Which of the following statements concerning corporate bonds is most accurate? The denomination is usually:

A) $1,000, and the maturities usually range from 10 to 20 years.

B) $100,000, and the maturities usually range from 5 to 10 years.

C) $1,000, and the maturities usually range from 5 to 10 years.

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Corporate bonds usually have a face value of $1,000 and mature between 5 and 10 years.

ikoreaii

What is the typical face value of a corporate bond?

A) $1,000.

B) $100,000.

C) $100.

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The most common face value of a corporate bond is $1,000.

ikoreaii

Which of the following statements concerning taxable bonds is most accurate?

A) Treasuries have the lowest yields, followed by corporates, then by agencies, which provide the highest returns.

B) Treasuries have the lowest yields, followed by agencies, then by corporates, which provide the highest returns.

C) Corporates have the lowest yields, followed by Treasuries, then by corporates, which provide the highest returns.

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The difference in yields is largely due to the default risk premium. Treasuries are considered to be default-risk free, while corporate bonds have the highest default risk.

ikoreaii

Which of the following statements about special purpose vehicles (SPVs) is most accurate?

A) SPVs do not legally own the assets of the asset backed pool.

B) SPVs are used exclusively for asset backed transactions.

C) If bankruptcy occurs, a judge could rule that the SPVs assets can be considered general assets of the corporation.

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Legal experts believe this is unlikely, but the issue is still a bit ambiguous legally.

ikoreaii

Which of the following entities play a critical role in the ability to create an asset backed security with a higher credit rating than the corporation?

A) Rating agencies.

B) Investment banks.

C) Special purpose vehicles (SPVs).

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SPVs, or special purpose corporations, buy the assets from the corporation. The SPV separates the assets used as collateral from the corporation that is seeking financing. This shields the assets from other creditors.

ikoreaii

Which of the following reasons is the best reason NOT to enhance the credit quality of an asset backed security (ABS) pool?

A) Liquidity.

B) Cost.

C) Increase the chance of bankruptcy.

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Credit enhancements increase the costs associated with borrowing using ABS.

ikoreaii

Which of the following statements about asset backed securities (ABSs) is most accurate?

A) The credit rating of an ABS must be the same as that of the issuer.

B) Residential mortgages represent the largest type of asset that has been securitized.

C) Credit enhancements are uncommon for ABS.

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The credit rating of an ABS pool is a function of its credit enhancements, which are quite common. The more credit enhancements, the higher the ratings.