- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 18. Asset-Backed Security (ABS) Instrument and Market Features
- Subject 3. Non-Mortgage Asset-Backed Securities
CFA Practice Question
During the lockout period, the cash flow for a credit card receivable-backed security contains ______ collected from borrowers.
II. fees
III. scheduled principal payments
IV. principal repayments
I. interest
II. fees
III. scheduled principal payments
IV. principal repayments
Correct Answer: I and II
Principal paid by borrowers is reinvested in new receivables during the lockout period.
Note that there are no "scheduled" principal payments, only principal payments.
User Contributed Comments 3
| User | Comment |
|---|---|
| chessdude | Principal is reinvested, that's what means "lockout". |
| cuban | Borrowers can pay back principal along with interest. Its the investors who do not receive the principal payments during the lockout period. |
| StJohnDale | Agreed |