Question 41Collateralised debt obligations (CDOs) were responsible for significant damage and disruption to global financial markets as:the securities' cash flow was based on cash flows from other financial securities and not the cash flows from real assetsinvestors accepted the recommendations of CDO arrangers and rating agenciesO the CDOs' cash flows were based on cash flows from real assets and not from other financial securitiesO many investors were unable to assess the fairness of prices

The statement that accurately describes why collateralized debt obligations (CDOs) were responsible…

Answered: Collateralised debt obligations (CDOs)…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

While individual consumers have a credit score, large, publicly-held corporations are not typically rated for default risk True False
describe and compare alternative ways to estimate the probability of company defaulting on its debt obligations. Explain the difference between real-world and risk-neutral estimates
Why are unrealized gains and losses from available-for-sale securities not reported as a component of net income? Select one: a. Because goodwill exists that must be separately accounted for b. Because the investor has the ability to exercise significant influence over the investee c. Because consolidated financial statements must be prepared d. Because large swings in market value over which management has no control may distort current period performance as measured by net income
Which of the following statements is NOT true? A. Debt contracts tend to impose more restrictions on the actions of the borrower than the lender B. Larger corporations have easier access to the securities market C. The financial sector is one of the least regulated industries in the US economy D. Collateral is used to secure debt contracts
In the run-up to the 2007 – 2009 financial crises, all of these key trends undermined the health of the mortgage (and other) securitization markets except: Group of answer choices D. Banks failing to distribute securitized risk A. Risk-based pricing C. Subprime credit wrapped into complex and overvalued securities B. Subprime loans
When close to the zone of insolvency, managers have an incentive to gamble. This is known as Question options: a) an agency cost of debt that covenants cannot attenuate b) an agency cost of equity known as fraudulent conveyance c) an agency cost of debt that negative covenants can attenuate d) an agency cost of debt that positive covenants can attenuate
An auditor’s analytical procedures indicate a lower than expected return on an equity methodinvestment. This situation most likely could have been caused bya. An error in recording amortization of the excess of the investor’s cost over the investment’s underlying book value.b. The investee’s decision to reduce cash dividends declared per share of its commonstock.c. An error in recording the unrealized gain from an increase in the fair value of availablefor sale securities in the income account for trading securities.d. A substantial fluctuation in the price of the investee’s common stock on a national stockexchange.
Some believe that International Financial Reporting Standards (IFRS) provide too many choices within its accounting guidance. Is this a possible concern in the area of cash flow reporting in your opinion?
Investment Banks operate and earn profits by: a) Purchasing undervalued securities on the market b) Creating and marketing new financial securities for issuers. c) Underwriting existing security issues, and selling them at a discount. d) Issuing stocks and bonds based on their own credit. e) Purchasing and reselling existing undervalued stocks and bonds. f) None of the other answers.

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