FI hw 8 - Siming Zhu AEM 4260 Fixed Income November 13,...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Siming Zhu AEM 4260 – Fixed Income November 13, 2008 Homework #8 Chapter 14 Q9. What is the limitation of a third-party guarantee as a form of credit enhancement? A third-party guarantee as a form of credit enhancement is an external credit enhancement. The most common form of external credit enhancement involving a third-party guarantee is bond insurance. Bond insurance is a financial guarantee from a monoline insurance company requiring the insurer to guarantee the timely payment of principal and interest if the cash flow generated from the underlying loan pool cannot satisfy these payments. The limitation of a third-party guarantee is that investors face the potential risk of the third party (the insurance company) being downgraded. If the third party is downgraded, the bond classes the third party guarantees will be downgraded as well. Q11. A corporation is considering a securitization and is considering two possible credit enhancement structures backed by a pool of automobile loans. Total principal
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

FI hw 8 - Siming Zhu AEM 4260 Fixed Income November 13,...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online