Which of the Following Happens When Default Correlation of the Companies

question 6

Multiple Choice

Which of the following happens when default correlation of the companies underlying a CDO increases? choose one)

• A) The value of the senior tranche and the equity tranche to the protection buyer both increase.
• B) The value of the senior tranche and the equity tranche to the protection buyer both decrease.
• C) The value of the senior tranche to the protection buyer decreases and the value of the equity tranche to the protection buyer increases.
• D) The value of the senior tranche to the protection buyer increases and the value of the equity tranche to the protection buyer decreases.

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