A CDO Has Three Tranches,a Senior Tranche,mezzanine Tranche,and Equity Tranche

question 16

Multiple Choice

A CDO has three tranches,a senior tranche,mezzanine tranche,and equity tranche.Keeping the probabilities of default in the CDO collateral fixed,the value of the equity tranche increases if

• A)The correlation of default across all names in the CDO increases.
• B)The correlation of default across all names in the CDO decreases.
• C)The credit quality of names in the CDO collateral declines.
• D)The volatility of credit spreads on names in the CDO collateral increases.