How Did Asset Backed Commercial Paper (ABCP) Rollover Risk Contribute

question 110

Essay

How did asset backed commercial paper (ABCP) rollover risk contribute to the financial crisis of 2007-2009?

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Definitions:

Zero-Coupon Bonds

Bonds that don’t make periodic interest payments but are issued at a discount to their face value and redeemable for the face amount at maturity.

Expected Interest Rate

The anticipated rate at which interest is to be paid by a borrower for the use of money.

Municipal Bonds

Bonds issued by local government or municipalities, typically offering tax-exempt interest payments.

Corporate Bonds

Debt securities issued by corporations to raise capital, where the issuer promises to repay the borrowings plus interest.