SS 16. Fixed Income Analysis of Risk Flashcards Preview

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Flashcards in SS 16. Fixed Income Analysis of Risk Deck (24)
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1
Q

In a securitization, the seller of the pool of securitized assets is the:

A

Depositor

2
Q

The lower and upper PSA prepayment assumptions are called the:

A

Initial PAC collar

3
Q

PAC stands for:

A

planned amortization class

4
Q

When interest rates rise, the duration (increases/decreases)

A

Decreases

5
Q

Proceeds for repaying securitized bonds come from the:

A

cash flows of the underlying financial assets.

6
Q

Which type of bond is preferred by investors in a falling interest rate environment?

A

A floored floating-rate note

7
Q

A bond that makes coupon payments in one currency and pays the par value at maturity in another currency is called:

A

A dual currency bond

8
Q

Bonds with a higher duration:

Are _____ dated

Have a _____ coupon

Have a _____ yield

A

Are longer dated

Have a lower coupon

Have a lower yield

9
Q

What are the Four Cs of credit analysis?

A

Capacity

Collateral

Covenants

Character

10
Q

A putable bond exhibits (higher/lower) convexity than a normal option-free bond

A

Higher

11
Q

Approximate percentage price change of a bond =

A

(-)(duration)(change in yield)

12
Q

All non-callable bonds exhibit ______ convexity

A

Positive

13
Q

PSA stands for:

A

Public Securities Association

14
Q

‘The risk that an issuers creditworthiness may deteriorate’ defines:

A

Credit migration risk or downgrade risk

15
Q

Free cash flow =

A

Cash flow from operations - capital expenditures

16
Q

Principal payments associated with credit card receivable-backed securities are:

A

distributed to investors after the lockout period.

17
Q

CMO stands for:

A

Collateralized mortgage obligation

18
Q

A yield spread over a government

bond is also known as a:

A

G-spread

19
Q

What is the risk to senior tranche investors in a collateralized debt obligation (CDO)?

A

In default, the manager will not earn a return sufficient to payoff investors.

20
Q

A negative duration gap means the investment horizon is ______ than the Macaulay duration

A

Greater

21
Q

If interest rates are low, the convexity of a callable bond will be:

A

Negative

Convexity of callable bonds will be negative at low yields and positive at high yields.

22
Q

A synthetic collateralized debt obligation is a CDO backed by a portfolio of:

A

Credit Default Swaps

23
Q

What is the formula used to calculate the expected loss on a corporate bond?

A

Default risk * (1 - recovery rate)

24
Q

Modified/Effective duration formula:

A

(price when bond yield drops - price when bond yield rises)
/
2 * bond price * change in yield