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CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features

An analyst compares an auto loan ABS with a credit card ABS. Which statement is most accurate regarding the collateral and the structure?

Auto loan ABS are typically amortizing because the underlying loans have fixed repayment schedules. Credit card ABS are backed by revolving, non-amortizing receivables and so include a lockout period in which principal is reinvested before any amortization starts.

  1. ABoth are amortizing structures with scheduled principal throughout their lives.
  2. BAuto loan ABS are typically amortizing, while credit card ABS are non-amortizing with a revolving period.Correct
  3. CAuto loan ABS have a revolving period, while credit card ABS are fully amortizing.

Explanation

Auto loans are installment loans with fixed schedules, so the ABS amortize. Credit card receivables are revolving, so the ABS are non-amortizing loans in the pool, with a lockout period before amortization. The other options reverse or overstate these features.

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