"Fixed Income":bankruptcy reorganization
学习是一个不断积累的过程，每天学习一点，每天进步一点！为了帮助大家更高效地备考2021年CFA考试，正保会计网校每日为大家上新CFA习题供大家练习。让网校与您一起高效备考2021年CFA考试，梦想成真！
Questions 1:
The absolute priority rule is most likely violated in a:
A 、bankruptcy liquidation.
B 、special purpose entity securitization.
C 、bankruptcy reorganization.
Questions 2:
Which statement best describes the risk to senior tranche investors in a collateralized debt obligation (CDO)?
A 、There are no triggers that require the payoff of the principal to investors.
B 、In default, the manager will not earn a return sufficient to payoff investors.
C、 Leverage inherent in the CDO transaction results in higher risk.
C is correct. When a company is reorganized, the strict absolute priority has not always been upheld by the courts.
A is incorrect because in liquidations, the absolute priority rule generally holds.
B is incorrect because in the case of a SPV securitization, the courts (in most jurisdictions) have no discretion to change absolute priority because the bankruptcy of a company does not affect the SPV. The SPV is considered bankruptcy remote.
B is correct. In the case of defaults in collateral, there is a risk that the CDO manager will not earn a sufficient return to pay off the investors in the senior and mezzanine tranches. This will result in losses to these classes of bondholders.
A is incorrect because if the CDO manager fails to meet certain pre-specified tests, a provision is triggered that requires the payoff of the principal to the senior bond classes until the tests are satisfied.
C is incorrect because the CDO manager is using leverage to generate a return above the funding cost for the equity tranche holders. If certain pre-specified tests are not met by the CDO manager, a provision is triggered that requires the payoff of the principal to the senior bond classes until the tests are satisfied, thus deleveraging the CDO.
成功=时间+方法，自制力是这个等式的保障。世上无天才，高手都是来自刻苦的练习。而人们经常只看到“牛人”闪耀的成绩，其成绩背后无比寂寞的勤奋。小编相信，每天都在勤奋练习，即使是一点点的进步，大家一定可以成为人人称赞的“牛人”。
