CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

After the lockout period, the principal received from borrowers of credit card accounts is paid to ______.

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.
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