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The financial institutions that originate the loans sell a pool of cashflow-producing assets to a specially created third party that is called a Special-Purpose Vehicle (SPV). The SPV is designed to insulate investors from the credit risk of the originating financial institution. The SPV then sells the pooled loans to a trust, which issues interest bearing securities that can achieve a credit rating separate from the financial institution that originates the loan. The typically higher credit rating is given because the securities that are used to fund the securitization rely solely on the cash flow created by the assets and not on the payment promise of the issuer. Monthly payments from the underlying assets - loans or receivables - typically consist of principal and interest, with principal being scheduled or unscheduled. The cash flows produced by the underlying assets can be allocated to investors in different ways. Cash flows can be directly passed through to investors after administrative fees are subtracted, thus creating a "passthrough" security; alternatively, cash flows can be carved up according to specified rules and market demand, thus creating "structured securities."
Q. Determine Cost of redeemable Debt? Cost of redeemable Debt: - Usually a company issues a debt which is redeemable subsequent to a certain period during its life-time. Such a
You are presented with the budgeted data shown below for the period November 20X1 to June 20X2 by your firm. It has been extracted from the other functional budgets that have been
The modified duration is a measure of the sensitivity of a bond's price to interest rate changes; the assumption made here is that the expected cash flow does not
Why do you think closed-end country funds frequently trade at a premium or discount? Answer: CECFs (closed-end country funds) trade at a premium or discount since capital market
1. Why do you think you are asked to perform valuation given an array of discount rates? a. Would it not be more accurate to utilize, for example, CAPM to calculate cost of equi
A-Credit is the highest credit grade existing as allotted to a borrower by a lender. Lenders use a credit grading system to make the borrowers eligible. The more the borrower's cre
It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. We have seen above that the div
Depository institutions Depository institutions: intermediaries with a important proportion of their funds derived from customer deposits - include commercial banks - savings i
What is a sunk cost? Is it relevant while evaluating a proposed capital budgeting project? Explain. A sunk cost is a cash flow which has previously occurred, or that will take
What is a sunk cost? Is it relevant when evaluating a proposed capital budgeting project? Explain. A sunk cost is a cash flow that has already takes placed, or that will take
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