Savings, Investment Spending, and the Financial System- End of Chapter Problems16. Sallie Mae is a quasi-governmental agency that packages individual student loans into pools of loans and sells shares ofthese pools to investors as Sallie Mae bonds.a Sallie Mae's packaging process is called.Compared to a scenario where investors can only buy andsell individual loans, the pooling process results inandfor an investor.b. Sallie Mae's actions will cause investors to supplyfunding to students, creatingloans at ainterest rate.c. Suppose that a very severe recession hits and, as a consequence, many graduates cannot get jobs and default on theirstudent loans. These defaults will createfor investors and cause the bonds to becomethanexpected, leading toloans available at ainterest rate.

Question
Asked Oct 20, 2019
Savings, Investment Spending, and the Financial System- End of Chapter Problems
16. Sallie Mae is a quasi-governmental agency that packages individual student loans into pools of loans and sells shares of
these pools to investors as Sallie Mae bonds.
a Sallie Mae's packaging process is called
.Compared to a scenario where investors can only buy and
sell individual loans, the pooling process results in
and
for an investor.
b. Sallie Mae's actions will cause investors to supply
funding to students, creating
loans at a
interest rate.
c. Suppose that a very severe recession hits and, as a consequence, many graduates cannot get jobs and default on their
student loans. These defaults will create
for investors and cause the bonds to become
than
expected, leading to
loans available at a
interest rate.
help_outline

Image Transcriptionclose

Savings, Investment Spending, and the Financial System- End of Chapter Problems 16. Sallie Mae is a quasi-governmental agency that packages individual student loans into pools of loans and sells shares of these pools to investors as Sallie Mae bonds. a Sallie Mae's packaging process is called .Compared to a scenario where investors can only buy and sell individual loans, the pooling process results in and for an investor. b. Sallie Mae's actions will cause investors to supply funding to students, creating loans at a interest rate. c. Suppose that a very severe recession hits and, as a consequence, many graduates cannot get jobs and default on their student loans. These defaults will create for investors and cause the bonds to become than expected, leading to loans available at a interest rate.

fullscreen
check_circleExpert Solution
Step 1

a) Sallie Mae has engaged in securitization which is her packaging process. Because the likelihood that a default by one student is usually unrelated to, or independent from, the likelihood of default by some other student, buying a Sallie Mae bond provides greater diversification and liquidity for an investor than an individual student loan.

Step 2

b) Sallie Mae bonds, investors will be willing to supply more funds for students compared to a situation where only individual loans were availa...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour*

See Solution
*Response times may vary by subject and question
Tagged in

Business

Economics

Other

Related Economics Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: 1. What is the definition of Strategy? Why is it important? 2. What are the strategic planning proce...

A: Hey, Thank you for the question. According to our policy we can only answer to the first question. I...

question_answer

Q: Economics Question

A: Willingness to sell is the minimum price that a seller will accept for a specific good.

question_answer

Q: Can you help me with the question below? In Figure 1, suppose the marginal value for gasoline falls ...

A: Marginal value is the value gained foe either consuming or producing one additional good or service....

question_answer

Q: I need help answering number 1

A: The initial cost of the dam is given to be $100,000,000 and the cost of decommissioning the dam is s...

question_answer

Q: Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilem...

A: Price matching is when the firm claims that the price they charge is the lowest, then only they can ...

question_answer

Q: Under perfect competition, individual firms have no control over price. Therefore, the firm’s margin...

A: Under perfect competition, individual firms have no control over price. Therefore, the firm’s margin...

question_answer

Q: Output (Bushels of Marginal Cost (Dollars ) Barley) 10 bushels $e.30 20 bushels $e.60 30 bushels $e....

A: The marginal cost is the additional cost of production when one additional unit of output is produce...

question_answer

Q: Firms A and B are contemplating whether or not to invest in R&D. Each has two options: “Invest” ...

A: Gross revenue is calculated without deducting any type of costs from the revenue generated. 

question_answer

Q: What mechanisms allocate resources when the price of agood is not allowed to bring supply and demand...

A: The equilibrium price and quantity are determined by the intersection of demand and supply curves in...