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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Definitions:

State Meaning

To clearly and explicitly express or define the significance or intention of something.

Analyze Reasons

The process of examining the causes or motives behind an action or event to understand it better.

Truman's Decision

Refers to President Harry S. Truman's decision to use atomic bombs on Hiroshima and Nagasaki during World War II.

Atomic Bombs

Powerful weapons that release energy through nuclear reactions of fission, causing massive destruction and characterized by their historical use in Hiroshima and Nagasaki during World War II.