CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Bond issuers use different types of credit enhancement to reduce the credit risk of a bond issue and decrease its yield. Which one is NOT categorized as internal credit enhancement?
A. Excess spread
B. Overcollateralization
C. Surety bond
Explanation: A surety bond is a third-party guarantee of the performance of an obligation.

User Contributed Comments 3

User Comment
jacojacobs Why not A? Excess spread compensate for credit risk. It does not 'enhance internally', and risk is not reduced
I get C also, but what about A?
Haoran @jacojacobs: it is the definition.
bryce_81 @jacojacobs: Excess spread when the bond can pay out 4.5%, but choose to pay out 4.25%. The extra .25% of credit protection doe increase credit, but is internal to the bond. AN only wants external
You need to log in first to add your comment.