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

---

Definitions:

Radula

A unique, tongue-like structure in mollusks, used for feeding by scraping or cutting food before ingestion.

Scolex

The head or anterior end of a tapeworm, equipped with hooks and/or suckers for attaching to the intestinal wall of the host.

Tapeworm

A parasitic flatworm that lives in the digestive tracts of vertebrates, absorbing nutrients from the host's diet.

Pseudocoelom

Fluid-filled cavity between the gut and body wall; partially lined by tissue derived from mesoderm.