Question

The risk that your investment will lose value because your return is dependent on the stability of a secondary investment is known as __________.

liquidity risk ·

asset-backed risk ·

model risk ·

prepayment risk

Please help me! This question is not in my notes or in the textbook.

Answer 1

Answer : Asset backed risk

Asset backed securities are the ones who get their income from pool of assets, like loans or receivables. whatever income is generated from these assets are given as return to investors.  

Generally institutional investors purchase such assets and make on the spot payment to banks who holds such banks, so banks get money for further lending. On other hand, the institutional investors gets interest and principal payment on these loans which form return for them. so it is derived income from secondary investment   [Thumbs up please]