If a Tranche Spread Is 55 Basis Points and the Fixed

question 12

Multiple Choice

If a tranche spread is 55 basis points and the fixed coupon is 60 basis points,which of the following happens when a trader buys protection?

• A) The trader pays an estimate of the present value of 5 basis points per year and then pays 55 basis points per year
• B) The trader pays an estimate of the present value of 5 basis points per year and then pays 60 basis points per year
• C) The trader receives an estimate of the present value of 5 basis points per year and then pays 55 basis points per year
• D) The trader receives an estimate of the present value of 5 basis points per year and then pays 60 basis points per year

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Definitions:

Real Object

In psychoanalysis, an actual person or thing in the external world, as opposed to an imagined or internalized object.

Defense Mechanisms

Methods used by the ego to prevent unconscious anxiety or threatening thoughts from entering consciousness.

Ego

In psychoanalytic theory, the part of the personality that mediates between the demands of the id, superego, and reality.

Consciousness

The state of being aware of and able to think about one's own existence, sensations, thoughts, and environment.