- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 45. Introduction to Asset-Backed Securities
- Subject 7. Non-Mortgage Asset-Backed Securities
CFA Practice Question
After the lockout period, the principal received from borrowers of credit card accounts is paid to ______.
II. all bondholders as one lump sum
III. bondholders according to a pre-specified schedule similar to the principal window for a PAC bond
IV. different tranches sequentially
I. all bondholders on a pro rata basis
II. all bondholders as one lump sum
III. bondholders according to a pre-specified schedule similar to the principal window for a PAC bond
IV. different tranches sequentially
A. I, II and III
B. I, III and IV
C. I, II and IV
Explanation: I. Pass-through structure describes a situation in which principal received from borrowers is paid to all bondholders on a pro rata basis.
II: When principal is paid to all bondholders in one lump sum, this is known as bullet-payment structure.
III. A controlled-amortization structure refers the payment of bondholders according to a pre-specified schedule.
User Contributed Comments 4
| User | Comment |
|---|---|
| rhardin | So IV is not an option for credit card backed ABS? |
| jpducros | Are these 3 different ways of repayment ? |
| biitii | CFA: "there are 3 different amortization structures that have been used in credit card receivable-backed security deals: 1) passthrough structure, 2) controlled amortization structure, and 3) bullet-payment structure. The latter two are the more common"... |
| Lambo83 | Why is number 2 correct? I don't think principal is paid after lockout period in one lump sum in all scenarios. |