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NEW QUESTION: 1
Wendall Wayne is a fixed income portfolio manager with Skyline Investments. Until recently he has focused almost exclusively on residential mortgage-backed securities (MBS). However, two weeks ago he was given approval to begin purchasing asset-backed securities (ABS) and commercial MBS as well.
Wayne has forecasted that interest rates will decrease by approximately 100 basis points over the next month.
Wayne first completes an analysis of two tranches (a PAC I tranche and a support tranche) from a collateralized mortgage obligation (CMO) that was issued 18 months ago. When the CMO was issued, the initial collar of the PAC I tranche was 150 - 400 PSA. He estimates the change in the average life of each tranche as the prepayment speed varies, assuming the prepayment speed stays at that speed until the tranche matures. The results are shown in Exhibit 1.
In his report, Wayne makes the following statements regarding the CMO:
Statement 1: The CMO is structured so that the support tranche has more extension risk, and the PAC I tranche has more contraction risk.
Statement 2: The cash flows of the PAC I tranche will be less affected by the change in interest rates I have forecast than the cash flows of the support tranche.
Wayne has pushed for approval to begin trading ABS because he is particularly interested in collateralized debt obligations (CDOs). However, he doesn't know a lot about them, so he first does some reading and prepares some key points related to CDOs to guide his analysis.
Statement 3: CDOs are typically collateralized by emerging market bond issues, home equity bank loans, and high-yield corporate bond issues.
Statement 4: One advantage of issuing a synthetic CDO versus a cash CDO is that credit risk is lower with a synthetic CDO because the junior note holders also sell a credit default swap.
Statement 5: Some CDOs include an equity tranche to provide payment and credit protection to the senior and mezzanine tranches, but for most issues, credit protection is provided by external credit enhancements.
Wayne wants to understand the distinction between amortizing and non-amortizing assets that are securitized by ABS transactions, as well as the appropriate spread measures to use for various types of fixed-income securities. He asks a colleague, Martin Freed, to explain to him the difference between the two and how the payment structure of the ABS is affected by whether the assets in the pool are amortizing or non-amortizing. Freed replies:
Statement 6: An auto loan is an example of an amortizing asset, and a credit card receivable is an example of a non-amortizing asset.
Statement 7: For amortizing assets, the composition of the loans in the asset pool doesn't change once the assets are securitized. For non-amortizing assets, the composition of the asset pool does change.
Freed also tells Wayne that the credit analysis of commercial mortgage-backed securities (CMBS) should focus on the credit risk of the property, not the borrower. Freed also says that two key ratios useful for assessing the credit risk of the property are the debt service coverage ratio (net operating income/debt service) and the loan-to-value ratio (current mortgage amount/current appraised value). Wayne concludes that both of the ratios Freed recommends for credit analysis of CMBS are positively related to credit risk:
the higher the ratio, the more risky the loan.
Finally, Wayne is trying to determine the most appropriate spread measure for valuing callable corporate bonds and high-quality home equity loan ABS. He plans to choose from the following measures: the zero- volatility spread, the OAS from the binomial model, and the OAS from the Monte Carlo model.
What is the most appropriate spread measure for valuing callable corporate bonds and high-quality home equity loan ABS?
Callable corporate bond Home equity loan ABS
A. OAS from binomial model OAS from Monte Carlo model
B. OAS from binomial model OAS from binomial model
C. Zero-volatility spread OAS from binomial model
Answer: A
Explanation:
Explanation/Reference:
Explanation:
The Z-sprcad should not be used for bonds with embedded options (like callable corporate bonds and home equity ABS) because it does not reflect the possibility that the cash flows from the bond may change as interest rates change. Instead OAS should be used for both. The callable corporate should be valued with an OAS from a binomial model because its cash flows are not interest rate path dependent; the home equity ABS should use an OAS from a Monte Carlo model because its cash flows are interest rate path dependent. (Study Session 14, LOS 54.c,g and Study Session 15, LOS 57-b,e)
NEW QUESTION: 2
One of these statements about the key elements of a good configuration process is NOT true
A. Ensure that all requirements remain clear, concise, and valid
B. Control modifications to system hardware in order to prevent resource changes
C. Accommodate the reuse of proven standards and best practices
D. Ensure changes, standards, and requirements are communicated promptly and precisely
Answer: B
Explanation:
Configuration management isn't about preventing change but ensuring the integrity of IT resources by preventing unauthorised or improper changes.
According to the Official ISC2 guide to the CISSP exam, a good CM process is one that can:
(1)
accommodate change;
(2)
accommodate the reuse of proven standards and best practices;
(3)
ensure that all requirements remain clear, concise, and valid;
(4)
ensure changes, standards, and requirements are communicated promptly and precisely; and
(5)
ensure that the results conform to each instance of the product.
Configuration management Configuration management (CM) is the detailed recording and updating of information that describes an enterprise's computer systems and networks, including all hardware and software components. Such information typically includes the versions and updates that have been applied to installed software packages and the locations and network addresses of hardware devices. Special configuration management software is available. When a system needs a hardware or software upgrade, a computer technician can accesses the configuration management program and database to see what is currently installed. The technician can then make a more informed decision about the upgrade needed.
An advantage of a configuration management application is that the entire collection of systems can be reviewed to make sure any changes made to one system do not adversely affect any of the other systems
Configuration management is also used in software development, where it is called Unified Configuration Management (UCM). Using UCM, developers can keep track of the source code, documentation, problems, changes requested, and changes made. Change management In a computer system environment, change management refers to a systematic approach to keeping track of the details of the system (for example, what operating system release is running on each computer and which fixes have been applied).
NEW QUESTION: 3
Not including TestManager or custom logging, how can you organize RFT test results?
A. define and follow a naming convention for all logs and log subfolders
B. create as many folders in the *_logs project as needed and drag logs into the appropriate folders
C. define and follow a naming convention for all test logs
D. create additional log projects which are associated with the primary RFT project, (for example, <project>_acceptance_logs)
Answer: C