Series 65 Quiz: Distinguish Asset Backed Securities

What this quiz covers

This quiz focuses on Distinguish Asset Backed Securities, giving you a quick way to practice the rules, question types, and explanations that matter most for Series 65.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. Credit card ABS that rely on a mortgage servicer and escrow accounts
2. Equipment lease ABS that allocate lease payments into revolving periods
3. Collateralized mortgage obligations that allocate cash flows into tranches (correct answer)
4. Auto loan ABS guaranteed by Ginnie Mae and backed by FHA mortgages

Question 2

1. Servicers provide FDIC insurance coverage on investor principal and interest
2. Servicers set monetary policy to stabilize mortgage rates and prepayments
3. Servicers collect borrower payments and manage delinquencies for the pooled loans (correct answer)
4. Servicers act as underwriters guaranteeing resale value of the collateral assets

Question 3

1. mezzanine tranche.
2. senior tranche. (correct answer)
3. equity tranche.
4. Z-tranche.

Question 4

1. A debt instrument collateralized by a pool of financial assets such as loans or receivables. (correct answer)
2. An equity instrument representing ownership in a special purpose vehicle.
3. A U.S. government bond guaranteed by future tax receipts.
4. A corporate bond secured by the physical plant and equipment of the issuing corporation.

Question 5

1. It is backed by conventional mortgages originated by a government agency.
2. Timely payment of principal and interest is backed by the full faith and credit of the U.S. government. (correct answer)
3. Its market value is not subject to interest rate risk.
4. It represents an ownership interest in a government-sponsored enterprise like Fannie Mae.

Question 6

1. possibility of the issuer calling the security before maturity.
2. risk of the U.S. dollar depreciating against foreign currencies.
3. likelihood that borrowers in the underlying asset pool will default on their loans. (correct answer)
4. chance that rising interest rates will cause the security's market price to fall.

Question 7

1. a pool of real estate properties.
2. a portfolio of various debt instruments. (correct answer)
3. the common stock of a single large corporation.
4. future revenue from a single infrastructure project.

Question 8

1. 8%
2. 7%
3. 4% (correct answer)
4. 9%

Question 9

1. corporate equipment leases.
2. student loans.
3. automobile loans. (correct answer)
4. commercial real estate mortgages.

Question 10

1. To eliminate all investment risk for the security issuer.
2. To guarantee a fixed rate of return for all investors.
3. To create a series of securities with varying levels of risk and return. (correct answer)
4. To ensure that all investors receive their principal back at the same time.

Question 11

1. Commodity price swings directly determining contractual coupon payments
2. Municipal tax collections varying with local budget cycles
3. Corporate dividend policy changes affecting equity distributions
4. Borrower refinancing and home turnover changing principal repayment timing (correct answer)

Question 12

1. The servicer replaces the trustee by issuing new shares of the originator's stock
2. The servicer sets monetary policy to stabilize ABS and MBS market prices
3. The servicer guarantees investor returns regardless of collateral performance
4. The servicer collects borrower payments and manages delinquencies for the pool (correct answer)

Question 13

1. ABS use only common stock dividends; MBS use only preferred stock dividends
2. ABS use only mortgages; MBS use only auto loans and equipment leases
3. ABS use only municipal revenue pledges; MBS use only corporate bond coupons
4. ABS commonly use consumer or commercial receivables; MBS use mortgage loans (correct answer)

Question 14

1. Shareholder voting rights and proxy rules governing equity distributions
2. Patent licensing disputes affecting royalty-backed receivables in the pool
3. Perfection and enforcement of mortgage liens under state real property law (correct answer)
4. Covenants in unsecured debentures governing dividend restrictions

Question 15

1. interest payments only.
2. scheduled principal payments only.
3. both interest and principal paid by homeowners in the pool. (correct answer)
4. dividend payments from the issuing financial institution.

Question 16

1. principal will be returned sooner than expected due to falling interest rates.
2. the maturity of the security will be shortened due to high default rates.
3. principal will be returned later than expected due to rising interest rates. (correct answer)
4. the credit rating of the underlying collateral will be downgraded by a rating agency.

Question 17

1. the economy enters a deep recession, increasing unemployment.
2. the Federal Reserve significantly increases the federal funds rate.
3. market interest rates fall substantially below the rates on the underlying mortgages. (correct answer)
4. the housing market experiences a sharp decline in property values.

Question 18

1. credit rating of the security.
2. type of underlying collateral. (correct answer)
3. sensitivity to interest rate changes.
4. legal structure of the issuing entity.

Question 19

1. geographical diversification of the underlying assets.
2. process for selecting assets to include in the collateral pool.
3. final maturity date for each individual security issued.
4. priority of payments for principal and interest among the different tranches. (correct answer)

Question 20

1. Seasoned first-lien mortgages guaranteed by a government-sponsored enterprise
2. Fully amortizing fixed-rate residential mortgages in a pass-through structure
3. Commercial mortgage loans with balloon payments at maturity in a CMBS pool
4. Credit card receivables with periodic additions of new receivables to the trust (correct answer)