Which of the Following Happens When the Default Correlation of the Companies

question 20

Multiple Choice

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

• 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:

Minimum Wage

A legal floor on the wage rate. The wage rate is the market price of labor.

Unemployment

Refers to the situation where individuals who are able and willing to work are not employed.

Skilled Workers

Individuals who have special training, education, knowledge, and abilities in their field of work.

Government Price Floor

A minimum price set by the government for certain goods, ensuring producers receive a minimum return regardless of market forces.