Suppose That ABSs Are Created from Portfolios of Subprime Mortgages

question 11

Multiple Choice

Suppose that ABSs are created from portfolios of subprime mortgages with the following allocation of the principal to tranches: senior 80%,mezzanine 10%,and equity 10%.(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.Losses on the mortgage portfolio prove to be 16%.
-What,as a percent of tranche principal,are losses on the mezzanine tranche of the ABS CDO

• A)50%
• B)60%
• C)80%
• D)100%

---

Definitions:

In-House Agency

A marketing or advertising agency that is owned and operated within the company it serves, as opposed to being an external or separate entity.

Portfolio Test

A method used in advertising and marketing to evaluate the effectiveness of different advertisements by presenting them together with other ads to consumers.

Test Ad

An advertisement designed to gauge the responses of targeted consumers before a full-fledged marketing campaign.

Evaluative Scales

Tools used to assess attitudes or preferences by measuring responses along a continuum, such as from strongly agree to strongly disagree.