Question

45.which of the following risks is associated with the degree of recovery if default occurs?

credit risk

reinvestment risk

liquidity risk

47.in asset-backed securities, if an issue had credit tranching, it means investors can:

select senior or subordinated bonds

reduce extension risk

reduce contraction risk

Answer 1

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Q45:

Answer: Credit risk:

Credit risk is at risk of default on borrowed money from the borrower. It is failing to make required payments.

Reinvestment risk: reinvestment risk is the risk that the investor will not be able to invest intermediate cash flows at the same rate of return or higher, then he is the current rate of return.

Liquidity risk: it is the risk that for the second period of time, security cannot be traded quickly in the market without impacting the prices.

Here, in this case, It is the risk associated with the degree of recovery so it is credit risk.

Q47: Answer:
select senior or subordinated bonds.

Credit tranching refers to a multilayer structure in which the security is divided based on their credit risk.

Senior tranch has the least amount of Credit risk.