Which of the Following Describes the Waterfall Typically Used for Mortgages

question 8

Multiple Choice

Which of the following describes the waterfall typically used for mortgages pre-crisis?

• A) A distribution of cash flows to tranches with priority given to tranche with the highest rating
• B) A distribution of cash flows to tranches in proportion to their outstanding principals
• C) A distribution of losses to tranches so that tranches bear losses in proportion to their outstanding principals
• D) None of the above

---

Definitions:

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the number of units produced, indicating the cost per unit.

Perfectly Competitive Industry

A theoretical market structure characterized by unlimited buyers and sellers, homogeneity of products, and no barriers to entry or exit, leading to optimal pricing and efficiency.

Industry Supply

The total quantity of a particular good or service that is available for purchase in a market by all producers.

Market Price

The current price at which an asset or service can be bought or sold, determined by the supply and demand forces in the market.