MOCK2 Q8 CDO amortizing vs. non

it seems to me at least 2 described by this guy are correct. collateral and principal payment what is wrong with the following? collateral for amortizing does not change, but changes for non-a

I would like clarification on this one as well. S

how about posting the actual question with the explanation, I’d like to help but have no idea what you are looking at. I don’t have MOCKs.

Did anyone follow up on this? I am convinced that the question should have said “Which one of the Lundberg’s comments about amortizing and non-amortizing assets is *INCORRECT*” instead of “correct”

Frangoya, agree 100%. I worked in this area for a couple of years and that question stumped the hell outta me, and the answer didn’t provide much clarity, either.

was too lazy to look into this last nite, but pulling out my CFAi texts to get to the bottom of this…

Hold on, I just remembered that I did get to the bottom of this one. Lemme run out to my car (where my exam and notes are). Back in fifteen.

All right, well I was half right - the first statement is “incorrect” (is not always correct) because the periodic payments for non-amortizing assets can include both principal and interest, they do not only have to be interest. Didn’t have any notes for why the third statement is incorrect, but I do remember that I had somewhat of an “ah hah” moment and agreed with them on it. If I remember what it was I’ll post it.

The third statement: principal repayment can be distributed or *reinvested*

yes def should read “incorrect” Amortizing assets are loans for which the borrower makes periodic scheduled payments that include both principal and interest. The interest amount is subtracted from the total payment, and the balance is applied toward the principal, reducing the outstanding loan. Amounts in excess of the scheduled periodic payment are applied to a further reduction of principal. Such additional payments are called prepayments. A residential mortgage is an example of an amortizing loan. Non-amortizing assets are loans that do not have a scheduled payment amount. Instead, a minimum payment, which is applied against accrued interest, is required. If the minimum payment exceeds the accrued interest, the excess is applied toward reducing the outstanding principal. If the payment falls short of the accrued interest, the outstanding loan balance is increased by the amount of the shortfall. A revolving credit card loan is an example of a non-amortizing asset. The structure of the ABS transaction is affected by whether the assets backing the bonds are amortizing or non-amortizing. For amortizing assets like auto loans, once the assets are securitized, the composition of the loans in the pool doesn’t change. Loans disappear from the pool as they are paid off or default, but no new loans are added to the pool to replace them. Principal payments and prepayments on the remaining loans are distributed to the bondholders according to the distribution rules of the structure. For non-amortizing assets like credit card receivables, however, the composition of the loans in the pool can and does change. During the lockout period (e.g., the first 18 months), principal payments and prepayments are not distributed to the bondholders as is the case with amortizing assets. Instead, the cash flow from these principal payments is used to invest in new loans to replace the amounts paid off. This type of structure is called a revolving structure.

The wording on that one was nasty even if you know your $hit on this stuff.

Exactly; I disagree that it should’ve read “incorrect”, and it seemed to make sense to me as I reviewed and realized, but yes, that wording was phucking brutal. I feel like I know this material cold and I got it wrong.

So I think the correct answer should actually be the one about composition? For amortizing assets like auto loans, once the assets are securitized, the composition of the loans in the pool doesn’t change. For non-amortizing assets like credit card receivables, however, the composition of the loans in the pool can and does change.

skill - A - incorrect, B - correct, principal received prior to lock out is reinvested for Non-amorts, (revolving structure) C - Correct, collateral comp doesn’t change for amort, but CAN and DOES change for non-amort (ie CC recievs during lock up) So, not sure why C is incorrect…

I’d have to look at the exact question (someone feel like posting?), but I definitely recall that my study partner and I found a word in the third one that made it incorrect. I looked at my exam but, in my idiocy I only made a note of why the first one was incorrect, as I believe my excitement from finding why the third statement was incorrect precluded me from remembering to write down why. I’m a true dumbass sometimes.

I think C is wrong because amortizing asset collarteral can change due to default, so you can’t really say that is DOES NOT CHANGE IN COMPOSITION

I don’t believe that what we decided, but you’re on the right track…Goddamit why didn’t I write that down? What a stupid I am.

This question has been bugging me for hours

I’m moving on… Los63.c!

I was pretty frustrated over this question as well. I consider Fixed Income my forte, and this was an unnecessarily challenging section. I also got thrown off on the question about the value of the IO-strip. I am not sure if it was part of the same item set or not.