FRCEM Prüfungs Guide - FRCEM Übungsmaterialien, FRCEM Prüfungs - Championlandzone

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  • Vendor : RCEM
  • Certifications : FRCEM Certification
  • Exam Name : FRCEM Primary Examination
  • Exam Code : FRCEM
  • Total Questions : 376 Q&As
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    Jerry Sanders, CFA, has been asked to analyze the 20-year bonds of Marietta Tech, Inc., which are currently being held in a corporate bond portfolio managed by a colleague, and to recommend whether the bonds should be sold or held. The bonds currently have a yield spread of 1.55% over Treasuries.
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    Exhibit 1: Selected Financial Data for Marietta Tech, Inc. (in thousands of $)


    At lunch Sanders discusses the credit analysis of various types of bonds with Elizabeth Yan, who was just hired as a bond analyst. Yan makes the following statements:
    Statement 1: An analysis of the issuer's business and operating risks is important to the analysis of corporate bond credit risk but not important for the credit analysis of asset backed securities (ABS).
    Statement 2: The unique bond covenants in a municipal bond's trust indenture require an additional level of credit analysis not necessary in a corporate credit analysis.
    Jerry Sanders, CFA, has been asked to analyze the 20-year bonds of Marietta Tech, Inc., which are currently being held in a corporate bond portfolio managed by a colleague, and to recommend whether the bonds should be sold or held. The bonds currently have a yield spread of 1.55% over Treasuries.
    Marietta Tech, Inc. designs, manufactures, and markets specialty trucks and truck bodies mounted on new truck chassis produced by others, including concrete mixers, refuse bodies, fire and emergency vehicles, defense trucks, cut-away and dry freight van bodies, refrigerated units, stake bodies, and other specialized trucks. Marietta also manufactures fiberglass wind deflectors, armored trucks, shuttle buses, and cargo vans. Marietta's customers are located in the United States and Canada.
    Exhibit 1: Selected Financial Data for Marietta Tech, Inc. (in thousands of $)

    At lunch Sanders discusses the credit analysis of various types of bonds with Elizabeth Yan, who was just hired as a bond analyst. Yan makes the following statements:
    Statement 1: An analysis of the issuer's business and operating risks is important to the analysis of corporate bond credit risk but not important for the credit analysis of asset backed securities (ABS).
    Statement 2: The unique bond covenants in a municipal bond's trust indenture require an additional level of credit analysis not necessary in a corporate credit analysis.
    Are Statement 1 and Statement 2 made by Yan correct?
    A. Neither statement is correct.
    B. Both statements arc correct.
    C. Only one of the statements is correct.
    Answer: B
    Explanation:
    Explanation/Reference:
    Explanation:
    Both of Yan's statements are correct. The two most important factors in an analysis of a corporate issuer are the capacity to pay (particularly a cash Bow analysis) and the corporate governance structure. This requires an analysis of the issuers business and operating risks {e.g. profitability, solvency, and leverage).
    However, there arc no business or operating risks to assess with an ABS. Instead the emphasis is on the quality of the collateral that backs the ABS, particularly the collateral's capacity ro generate cash flow to meet the repayment obligations of each tranche under various scenarios of default and delinquency experience.
    The analysis of municipal tax-backed and revenue bonds is simitar to that of corporate issuers. The only important difference in the analysis of municipal bonds is that the rate covenants and priority-of-revenue claims clause are unique to the trust indenture of municipal revenue bonds, so they require an additional level of analysis not necessary with corporate bonds. (Study Session 14, LOS 51.e,h,j)


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