Question #32
Reading: Reading 28 Credit Analysis Models
PDF File: Reading 28 Credit Analysis Models.pdf
Page: 13
Status: Correct
Correct Answer: A
Question
As compared to otherwise identical corporate debt, securitized debt is least likely to have:
Answer Choices:
A. higher leverage for the issuer
B. the same risk premium
C. lower cost for the issuer
Explanation
The isolated structure of securitized assets allows for higher leverage and lower cost to
the issuer. Investors also benefit from greater diversification, more stable cash flows and a
higher risk premium relative to similar rated general obligation bonds (due to higher
complexity associated with collateralized debt).