If a Tranche Spread Is 55 Basis Points and the Fixed

question 12

Multiple Choice

If a tranche spread is 55 basis points and the fixed coupon is 60 basis points,which of the following happens when a trader buys protection?

• A) The trader pays an estimate of the present value of 5 basis points per year and then pays 55 basis points per year
• B) The trader pays an estimate of the present value of 5 basis points per year and then pays 60 basis points per year
• C) The trader receives an estimate of the present value of 5 basis points per year and then pays 55 basis points per year
• D) The trader receives an estimate of the present value of 5 basis points per year and then pays 60 basis points per year

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