Suppose That ABSs Are Created from Portfolios of Subprime Mortgages

question 18

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 of the ABSs 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:

ESS

An Executive Support System is a type of management information system designed to help senior executives make strategic decisions.

ISS

An abbreviation for the International Space Station, a large spacecraft in orbit around Earth serving as a home and research laboratory for astronauts.

Outsourcing

A business strategy where certain job functions or processes are contracted out to a third party.

HRIS

Human Resources Information System, a digital solution for managing and automating many HR tasks from payroll to employee performance monitoring.