binnu

[em57]非常感谢

bairn

 

11. Assuming the 1-year T-bill rate of 4.25% and the rate on 1-year zero-coupon corporate bonds is 7.75%, which of the following numbers is closest to the probability that a corporate loan will be repaid fully (assuming that the credit spread is due to firm-specific credit risk alone)?

A. 96.75%

B. 3.25%

C. 96.21%

D. 3.79%

Correct answer is A

Probability of Repayment     = 1 ? Probability of Default = 1 ? [1 - (1.0425/1.0775)] = 0.9675 = 96.75%.fficeffice" />

Reference: ffice:smarttags" />Hull, Options, Futures, and Other Derivatives, Chapter 22.

 

12. In a securitized transaction, over-collateralization results when

A. The originator puts aside some cash in a reserve account to absorb credit losses.

B. A securitization transaction carves up the cash flows generated from the asset pool into various pieces.

C. The interest payments and other fees received on the assets in the pool exceed the interest payment made on the ABS plus the fee paid to service the assets along with miscellaneous expenses.

D. The value of the assets in the pool exceeds the amount of Asset Backed Security (ABS) involved.

Correct answer is D

A stands for cash reserve account

B definition for subordinated tranching

C mentions about excess spread

D is correct defines over collateralization:

 

13. For a company starting with rating B in year 1, calculate the default (rating D) probability for year 2.

A. 0.40%

B. 2.00%

C. 17.20%

D. 65.00%

Correct answer is A

A is correct. The default probability for year two is the sum of the probabilities of all the possible paths a company could take to default in year 2 starting with rating B in year 1.

Default probability for year 2 = P(D2 | A1) * P(A1 | B0) + P(D2 | B1) * P(B1 | B0) + P(D2 | C1) * P(C1 | B0) = 0 + 0 + 0.02 * 0.20 = 0.4%.

B is incorrect. The default probability for year two is the sum of the probabilities of all the possible paths a company could take to default in year 2 starting with rating B in year 1.

C is incorrect. The default probability for year two is the sum of the probabilities of all the possible paths a company could take to default in year 2 starting with rating B in year 1.

This answer incorrectly calculates the default probability for year 2 as: P(D2 | C1) * P(B1 | B0) = 0.2 * 0.86 = 0.172 (that is, the company starts year 1 with rating B, ends year 1 with rating B, then starts year 2 with rating C and ends year 2 with rating D, which is not possible since the company must start year 2 with the same rating it ends year 1).

D is incorrect. The default probability for year two is the sum of the probabilities of all the possible paths a company could take to default in year 2 starting with rating B in year 1.

Reference:  Arnaud de Servigny and Olivier Renault, Measuring and Managing Credit Risk. Chapter 3

 

14. When evaluating asset-backed securitization issues, which of following would be least important during the investor's analysis process?

A. The liability concentration levels of the asset originator.

B. The structure of the underlying securitization transaction.

C. The quality of the loan servicer for the underlying assets in the transaction.

D. The quality of the underlying assets within the securitization structure.

Correct answer is A

A is correct. Virtually anything to do with the issuer is important, but in the order of priority, looking at the issuer's liability concentrations, assuming you could obtain that information, is not as important as the other three alternatives.  Although the liability concentration levels are a very significant issue for the underlying originator to monitor and analyze, this is not a significant consideration for investors to review.

Reference:  Gunter Meissner, Credit Derivatives. Chapter 2.

B is incorrect. The structure of the underlying securitization transaction would be important in evaluating asset-backed securitization issues.

C is incorrect.  The quality of the loan servicer for the underlying assets in the transaction would be important in evaluating asset-backed securitization issues.

D is incorrect.  The quality of the underlying assets would be important in evaluating asset-backed securitization issues.

 

15. Scenario-based operational risk measurement and modelling methods have the following characteristics:

A. Objective, easy to understand and take advantage of business line manager expertise

B. Objective, exhaustively represent all the risks of the firm and easy to understand

C. Subjective, easy to interpret and take advantage of business line manager expertise

D. Subjective, easy to specify all the risks facing the firm and easy to understand

Correct answer is C

A is wrong because the approach is subjective, not objective.

B is wrong because the approach is subjective and does not exhaustively capture all risks easily.

C is the only choice where all the items on the list are a clear advantage to the approach.

D is wrong because it is not easy to specify all risks facing the firm.