- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 17. Fixed-Income Securitization
- Subject 2. The Securitization Process
CFA Practice Question
Suppose that the structure for an asset-backed security is as follows:
Subordinated bond class 1: $100 million
Subordinated bond class 2: $50 million
B. $20 million
C. $35 million
Senior bond class: $200 million
Subordinated bond class 1: $100 million
Subordinated bond class 2: $50 million
The subordinated bond class 2 is the first loss piece. If losses due to defaults over the life of the structure total $35 million, what is the amount of the loss for the senior bond class?
A. 0
B. $20 million
C. $35 million
Correct Answer: A
The subordinated bond class 2 must absorb the losses first.
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