Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

32 East Bank securitises a $50 million pool of its business loans. The asset backed securities (ABS) issued, as a result, come in 3 tranches

image text in transcribed
32 East Bank securitises a $50 million pool of its business loans. The asset backed securities (ABS) issued, as a result, come in 3 tranches of bonds: one $10 million tranche with an AAArating bought by an insurance company fund, a $25 million tranche with a BB rating bought by a superannuation fund and one tranche $15 million with a CCC rating sold to a managed fund. a) Represent the changes in the balance sheets of the SPV and East Bank. Assume that the SPV is a depositor of East Bank but investors in ABS are not depositors in East Bank. Clearly indicate in the balance sheets the nature of the funds involved and to whom they belong. Assume that the issue of ABS takes place before the purchase of loans. No explanation are required. (6 marks) b) Conclude whether East Bank has less credit risk and more funds, as a result of securitization. Explain your answers in details. (4 marks) 0) Identify which securities form the junior, the mezzanine and the senior tranches. Which of the three investors, the insurance company, the superannuation and the managed fund, will receive the interest first? Which of the three investors will be hit rst if the loans do not generate enough interest? Explain your answers in details

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Marketing

Authors: Johny K Johansson

4th Edition

0072961805, 9780072961805

More Books

Students also viewed these Economics questions

Question

Calculate the standard deviation for 1990 and 2009.

Answered: 1 week ago