Examples of asset-backed securities

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As a finance employee in a municipality, you have been informed that a separate $85 million pension fund for the municipality's firefighters will be carved out of the municipality's pension fund. The newly formed Firefighter's Pension Investment Committee is interested in investing up to $25 million of pension assets in asset-backed securities to mature in 10 years so that they can be disbursed to a fund for payment to retired firefighters. Your task is to make a presentation of 600-800 words to the committee explaining the different types of ABS for the committee's consideration. The presentation must include the following:

  • A discussion of at least 3 important types of ABS, including MBS
  • Two specific, real-world examples of asset-backed securities with appropriate maturities and how they compare to a Treasury security of the same maturity in terms of the spread over the Treasury yield
  • A discussion of the third risk that exists for MBS investors in addition to the credit and interest rate risks faced by all bondholders, as well as which kind of MBS would be the most appropriate for the pension fund given its 10-year horizon for disbursing funds
  • At least 2 outside sources

Reference no: EM13768667

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