Question #29
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 11
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Which of the following statements about special purpose entities (SPE) are correct or incorrect? Statement #1: The sponsor usually maintains the decision-making power and voting control over the SPE. Statement #2: The equity owners of an SPE usually receive a rate of return that is tied to the performance of the SPE.
Answer Choices:
A. Only one is correct
B. Both are correct
Explanation
Both statements are incorrect. The sponsor does not usually have voting control over the
SPE; the activities of an SPE are specifically detailed in governing documents created at the
origination of the SPE. The structure of the SPE transfers the risks and rewards from the
equity owners to the variable interest owners. In return, the equity owners usually receive
a fixed rate of return.