CFA Practice Question

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CFA Practice Question

Which statement(s) is (are) true?

I. There is no contraction risk for a credit card receivable-backed security as there is no schedule of principal repayments.
II. There is no extension risk for a credit card receivable-backed security.
A. I only
B. II only
C. None of them
Explanation: I. There is a provision or repaid amortization if certain triggers are reached. This carries the potential for contraction risk.

II. Principal repayment, defaults and delinquencies may be such that the schedule specified for principal repayment of the security during the amortization period may not be adequate to completely pay off bondholders by the stated maturity.

User Contributed Comments 2

User Comment
jpducros Can someone explain Answer I?
reganbaha once the lock-out period has expired pre-payment contraction risk occurs
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