INV3702 INVESTMENTS FIXED INCOME
ANALYSIS EXAM SCRIPT 2026 FULL
QUESTIONS WITH CORRECT ANSWERS
◉ Asset-backed security (ABS). Answer: securities that are backed,
or collateralized by a pool of assets, such as loans and receivables
◉ Securitized assets. Answer: Assets that are typically used to create
ABS bonds include: residential mortgage loans, commercial
mortgage loans, automobile loans, student loans, bank loans and
credit card debt
◉ Mortgage-backed security (MBS). Answer: Asset backed security
that is only compromised of mortgage loans
◉ What are the benefits of securitization for economies and
financial markets. Answer: -allows investors to get a direct exposure
to a portfolio of mortgages or other receivables without having a
bank as an intermediary
-allows banks to increase the amount of funds available to lend and
increase fee income
-allows the creation of tradable securities with better liquidity than
the original loans on the bank's balance sheet
-enables innovation in investment products
,**KNOW ALL OF THESE**
◉ Special purchase vehicle (SPV). Answer: purchases mortgages
from financial institutions and places them on the balance sheet
-where assets are held and sold
◉ What are the main two parties in securitization?. Answer: -
Originator (seller of collateral): originally owns the assets and sells
them to the issuer (SPV)
-Special purpose vehicle (SPV): creates a security backed by the
assets and sells them to investors
◉ Time tranching. Answer: A structure of bonds issued in
securitization- rules will be established for the distribution of
interest and principal to the bond classes. Some bond classes may
receive payments earlier than others (redistributes cash flows)
◉ Credit Tranching. Answer: A structure of bonds issued in
securitization - in a subordination structure the bond classes differ
as to how they will share any losses resulting from defaults of the
borrowers whose loans are in the pool of loans
*redistributes the credit risk of the collateral (underlying asset)
, ◉ What is a residential mortgage loan. Answer: a loan secured by
the collateral of some specified real estate property that obliges the
borrower to make a predetermined series of payments to the lender
◉ What are the 3 forms of residential mortgage backed securities?.
Answer: 1. those guaranteed by a government owned corporation
(Ginnie Mae)
2. Those guaranteed by a government sponsored agency (GSE
included Fanny Mae and Freddie Mac
◉ What are mortgage pass through securities?. Answer: a security
created when one or more holders of mortgages form a pool of
mortgages and sell shares or participation certificates in the pool
-holders of pass through securities receive pro-rata payments (do
not incorporate concept of time or credit tranching)
-are created when one or more holders of mortgages form a pool of
mortgages and sell shares or participation certificates in the pool.
The cash flow of a mortgage pass through security depends on the
cash flow of the underlying pool of mortgages
◉ What is prepayment risk and its components?. Answer: the
uncertainty of future cash flows because of prepayments
Components:
ANALYSIS EXAM SCRIPT 2026 FULL
QUESTIONS WITH CORRECT ANSWERS
◉ Asset-backed security (ABS). Answer: securities that are backed,
or collateralized by a pool of assets, such as loans and receivables
◉ Securitized assets. Answer: Assets that are typically used to create
ABS bonds include: residential mortgage loans, commercial
mortgage loans, automobile loans, student loans, bank loans and
credit card debt
◉ Mortgage-backed security (MBS). Answer: Asset backed security
that is only compromised of mortgage loans
◉ What are the benefits of securitization for economies and
financial markets. Answer: -allows investors to get a direct exposure
to a portfolio of mortgages or other receivables without having a
bank as an intermediary
-allows banks to increase the amount of funds available to lend and
increase fee income
-allows the creation of tradable securities with better liquidity than
the original loans on the bank's balance sheet
-enables innovation in investment products
,**KNOW ALL OF THESE**
◉ Special purchase vehicle (SPV). Answer: purchases mortgages
from financial institutions and places them on the balance sheet
-where assets are held and sold
◉ What are the main two parties in securitization?. Answer: -
Originator (seller of collateral): originally owns the assets and sells
them to the issuer (SPV)
-Special purpose vehicle (SPV): creates a security backed by the
assets and sells them to investors
◉ Time tranching. Answer: A structure of bonds issued in
securitization- rules will be established for the distribution of
interest and principal to the bond classes. Some bond classes may
receive payments earlier than others (redistributes cash flows)
◉ Credit Tranching. Answer: A structure of bonds issued in
securitization - in a subordination structure the bond classes differ
as to how they will share any losses resulting from defaults of the
borrowers whose loans are in the pool of loans
*redistributes the credit risk of the collateral (underlying asset)
, ◉ What is a residential mortgage loan. Answer: a loan secured by
the collateral of some specified real estate property that obliges the
borrower to make a predetermined series of payments to the lender
◉ What are the 3 forms of residential mortgage backed securities?.
Answer: 1. those guaranteed by a government owned corporation
(Ginnie Mae)
2. Those guaranteed by a government sponsored agency (GSE
included Fanny Mae and Freddie Mac
◉ What are mortgage pass through securities?. Answer: a security
created when one or more holders of mortgages form a pool of
mortgages and sell shares or participation certificates in the pool
-holders of pass through securities receive pro-rata payments (do
not incorporate concept of time or credit tranching)
-are created when one or more holders of mortgages form a pool of
mortgages and sell shares or participation certificates in the pool.
The cash flow of a mortgage pass through security depends on the
cash flow of the underlying pool of mortgages
◉ What is prepayment risk and its components?. Answer: the
uncertainty of future cash flows because of prepayments
Components:
