Suppose That ABSs Are Created from Portfolios of Subprime Mortgages

question 14

Multiple Choice

Suppose that ABSs are created from portfolios of subprime mortgages with the following allocation of the principal to tranches: senior 85%,mezzanine 10%,and equity 5%.(The portfolios of subprime mortgages have the same default rates.) An ABS CDO is then created from the mezzanine tranches with the same allocation of principal.How high can losses on the mortgages be before the mezzanine tranche of the ABD CDO bears losses?

• A) 5.0%
• B) 5.5%
• C) 6.0%
• D) 6.5%

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Definitions:

Routine Collective Action

Collective actions performed as part of an established habit or practice, typically within societal or organizational norms.

Social Networks

Structures made up of individuals or organizations connected by one or more specific types of interdependency, such as friendships, kinship, common interests, financial exchange, or relationships of beliefs.

Political Cohorts

Groups of individuals or entities that share similar political views or objectives, often working together for common goals.

Relative Deprivation Theory

The hypothesis that individuals assess their well-being based on comparisons with others, which can lead to feelings of deprivation when seeing others as better off.