Asset Business Assignment

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Exercise 1
As a finance employee in a municipality, you have been informed that a separate $85 million pension fund for the municipality’s firefighters will be carved out of the municipality’s pension fund. The newly formed Firefighter’s Pension Investment Committee is interested in investing up to $25 million of pension assets in asset-backed securities to mature in 10 years so that they can be disbursed to a fund for payment to retired firefighters. Your task is to make a presentation of 600–800 words to the committee explaining the different types of ABS for the committee’s consideration. The presentation must include the following:
> A discussion of at least 3 important types of ABS, including MBS
> Two specific, real-world examples of asset-backed securities with appropriate maturities and how they compare to a Treasury security of the same maturity in terms of the spread over the Treasury yield
> A discussion of the third risk that exists for MBS investors in addition to the credit and interest rate risks faced by all bondholders, as well as which kind of MBS would be the most appropriate for the pension fund given its 10-year horizon for disbursing funds
Exercise 2
You are a finance employee at a financial institution, specializing in originating auto loans in a country where auto loans have only been available for 2 years. Your group has just been informed that a close competitor has securitized $150 million in auto loans through an investment bank.
> Your boss wants to understand why the competitor did this. Explain.
> He also wants to understand the potential benefits for the following:
> The issuer
> The investors buying the ABS
> The individual borrowers seeking auto loans
> He also wants to know the likely impact to the auto loan market in this country if a large, liquid ABS market emerges over the next few years.
Exercise 3
As an assistant vice president at a regional bank, your boss has tasked you to find out about a new innovation in CMO structure called a Z Bond.
> Your boss wants you to do research on the Z Bond and explain what it is to him.
> In the context of the Z Bond, he has also heard of a NAS Tranche, and he also wants to know what that is and what risk it is designed to mitigate.
> Your Discussion Board posts must include 2 original posts (one on the Z Bond and one on the NAS Tranche) of at least 400 words for each of the 2 queries, and at least 5 responses of 200 words each to other students’ posts.

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