A loan-backed security derives its value from the income-earning potential of the pool of loans that backs these securities.

Question

Quizplus · Accepted Answer

A loan-backed security's value is indeed derived from the income generated by the pool of loans (such as mortgage loans, car loans, or student loans) that back these securities, as investors receive payments from the interest and principal payments made by the borrowers of the underlying loans.

A Loan-Backed Security Derives Its Value from the Income-Earning Potential