Finance 533 Winter, 2017 Exam 5 Thursday section The purpose of this exam is to evaluate asset securitization and financial derivatives. Here are the questions. The issue is a credit card receivable...

Finance 533
Winter, 2017
Exam 5 Thursday section
The purpose of this exam is to evaluate asset securitization and financial derivatives. Here are the questions. The issue is a credit card receivable ABS from Bank of America due in 2021. Follow the instructions given below.

1. What is the purpose of asset securitization?

The main purpose of asset securitization is enhancing the liquidity of the asset. Banks can replenish funds and use for other investment by asset securitization. For example, commercial banks can convert the illiquid asset into the tradable securities when the debt does not increase. Then, commercial banks can obtain more funds and speed up the capital turnover.
2. What are the main features of the credit cards in the BOA ABS?
3. What are the main risk factors?
4. Calculate the annual YTM for one bond based on the current price assuming that the price was quoted at the beginning of the bond issue. Use the LIBOR rate + spread to calculate the monthly payments for the bond.
5. Would you recommend an institutional investor to invest in these bonds? Why or Why not?
6. Why would a company issue a floating rate bond? What is the risk to the company?
7. What is the benefit to a bank from offering repurchase agreements to its corporate customers?
8. What are reverse repos? How are they used banks, companies, and the Fed? Explain the sequence for the result on the money supply.
9. Calculate the interest earned on a $123,789,456 repo for 1, 2, and 3 days. Use the current repo rate as reported in the Wall Street Journal. If this were done every day for a year, how much interest would the company earn? Is this worthwhile for the company?
10. An equity swap can only benefit one side of the transaction. Do you agree or disagree? Why?
The assignment is due by 6:00 pm on March 16, 2017. Late submissions will not be accepted without prior permission. The assignment is worth 100 points. The assignment is to be 1-3 pages, typed and single spaced. Grammar, spelling, and punctuation will be graded along with the content of the assignment.
The responses are to be sent in a plain, simple, easy-to-read Word file. Include your name at the top of each document.
There is to be no discussion of the assignment or cooperation with others, individually or jointly as in study groups. If such discussions or consultations occur, all involved students may get as low as ZERO for the assignment or an “F” for the course.
The assignments are to be submitted using SafeAssign in Blackboard.
Go to Exam 5 Submit in the Content section.
Click on View/Complete.
Upload your assignment in section 2.
Click on Global Reference Database in section 3.
Click on Submit.
BOA Credit Card ABS information
Go to FINRA bond prices
http://finra-markets.morningstar.com/BondCenter/
Go to Search
Select Securitization
Enter 05522RCV8 in the ABS-CUSIP Symbol box
Select Show Results
Current Price information will be shown
Bank of America prospectus
https://www.sec.gov/Archives/edgar/data/936988/000114036116068690/form424b5.htm
LIBOR rates from the Wall Street Journal
NOTE: rates are quoted on an annual basis.
http://www.wsj.com/mdc/public/page/2_3020-libor.html?mod=topnav_2_3012