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.
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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.
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- 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.
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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.
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- 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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