Fixed Income - Fixed Income Section 1
16. The type of collateral used to secure equipment trust bonds is most likely:
- Option : C
- Explanation : Equipment trust certificates are backed by physical assets. Mortgage backed securities are backed by mortgages. Collateral trust bonds are backed by securities.
17. Which of the following is most likely to be an example of an internal credit enhancement?
- Option : A
- Explanation : Excess spread is an example of an internal credit enhancement while letter of credit and surety bond are examples of external credit enhancement.
- Option : C
- Explanation : A security with an original maturity of one year or less is a money market security. A security with a credit rating of BBB or higher is investment grade.
19. Any rating below BBB by Standard & Poor’s (S&P) is least likely to be referred to as:
- Option : B
- Explanation : The rating below BBB by Standard & Poor’s is known as junk, high yield, speculative, or non-investment grade.
- Option : B
- Explanation : A sinking fund arrangement allows for the retirement of bond on an annual basis based on a random drawing. A serial maturity structure, a stated number of bonds mature and are paid off each year before final maturity. A term maturity structure allows for one lump sum payment at maturity.
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