Goldman Sachs' GSAMP Trust Was Able to Create AAA-Rated Securities

question 3

Multiple Choice

Goldman Sachs' GSAMP Trust was able to create AAA-rated securities by:

• A)separating the mortgage portfolio into tranches and assigning the tranches to share risks of default equally.
• B)not disclosing the risks clearly.
• C)guaranteeing or protecting some tranches.
• D)separating the mortgage portfolio into tranches and assigning the A-1, A-2, and A-3 tranches last in order, after the M-1 to M-7 and B-1 to B-3 tranches, to suffer losses if a default occurred.
• E)All of the above

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Definitions:

Forgoing Benefits

The benefits that are lost when choosing one alternative over another; also known as opportunity cost.

Present Benefits

Advantages or positive outcomes that are received or enjoyed currently, as opposed to in the future.

Future Benefits

Projected advantages or positive outcomes expected to be received in the future.

Inefficiently

Operating in a manner that does not maximize output or outcomes for a given set of resources, often leading to wastage or less optimal performance.