Question

Why do at least some investors like to invest in asset-backed securities?

Check all that apply:
a. It gives them control over more assets.
b. ABS are less risky than bonds with the same rating.
c. It lowers their capital requirements.
d. ABS often pay higher interest rates than bonds with the same rating.

Answer 1

Investors are attracted to asset-backed securities because they often offer higher interest rates and can lower capital requirements, though they do not necessarily provide more control over assets or lower risk than similarly rated bonds.

Step-by-step explanation:

Investors like to invest in asset-backed securities (ABS) for several reasons. First, although it does not necessarily give them control over more assets, ABS often pay higher interest rates than bonds with the same rating, potentially offering a better return on investment. Second, ABS can lower investors' capital requirements since they are sometimes structured to distribute risk. However, it's not accurate to say that ABS are less risky than bonds of the same rating as the risk depends on the underlying assets and the structure of the security. The credit quality and performance of the underlying assets are critical factors in determining the risk of ABS.