Description
**600 WORDS (ONE PAGE)**
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 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
- At least 2 outside sources
Explanation & Answer
Attached.
Asset Securitization –Outline
Thesis Statement: The knowledge on the type of security helps in making financial decisions
that benefit the company.
I.
Asset Based and Mortgage Based Securities
A. Auto loan
B. Credit Cards
C. Pass through
D. Collateralized mortgage obligation
II.
Asset Based Securities
A. High yield
B. Credit advantage
III.
Risks
A. Prepayment risk
B. Interest rates
Running head: ASSET SECURITIZATION
Asset Securitization
Name
Institution
1
ASSET SECURITIZATION
2
Asset Securitization
Asset Backed securities are securities have loans, assets, mortgages and real estate as
their backup. In many corporate organizations, they are alternative towards investing in debt. The
use of the asset-backed securities is critical in ensuring that there is a generation of more income
for the institution and this later lends to the investors creating a broad base for the generation of
income...