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Securitization is a financial innovation born out of the necessity the savings and loan associations of the United States of America face to save themselves from impending bankruptcy. When inflation began to rise and the market interest rates rose in step with it in the 1970s, these thrift (savings) institutions found that their spreads were turning negative, since they had to pay high market rates to attract short-term deposits (to compete with money market mutual funds and commercial banks offering money market accounts) and these rates were higher than the rates they were earning on the long-term mortgage loans which had been sanctioned years before. While mismatched assets and liabilities became a primary problem for the thrift institutions, another problem was excess demand for loans compared to the deposits collected by S&Ls, banks, etc. The solution to these problems was found in securitization of debt.
The securitization of residential real estate began in the United States on the basis of the deeply ingrained principle that the American family needs a home and will maintain that home over most other possessions; hence, the concept of using mortgage loans to support investment-grade securities. Here, the process of securitization took roots. Statistical research also showed that the default rates on residential real estate loan were both minimal and predictable. Investment bankers saw this as an opportunity to generate liquidity. By 'packaging' hundreds of individual real estate mortgages into one large security, great confidence could be achieved in terms of the financial characteristics of the group. While it would be impossible to guess the probability and timing of the default of any individual mortgage, one could frame reliable predictions regarding average default for a group of mortgages on the basis of historical studies of other similar large pools of mortgage loans.
Does financial leverage (debt) have any impact on the Free Cash Flow, on the Cash Flow to Shareholders, on the growth of the company and on the value of the shares? Debt has no
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Compare and contrast a defined benefit and a defined contribution pension plan. In a defined benefit plan, retirement benefits are defined by a formula that generally considers t
What does an investment banker do when underwriting a new security issue for a corporation? While underwriting a new security issue an investment banker buys it and after that re
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Assume that an investor invests $X in a 3-year zero coupon Treasury security. Three years from now, the total return received would be:
The net income of Novis Corporation is $45,000. The company has 20,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,
Factors Affecting cost of capital are elements in the business environment that cause a company cost of capital to be high and low. Figure below illustrative the various primary fa
Question: (a) A stock currently sells for $80 and a put option with an exercise price of $80 currently sells for $2. Find the percentage gain to an investor in the common stock
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