The Value of a CDO (Collateralized Debt Obligation) Unambiguously Increases

question 13

Multiple Choice

The value of a CDO (collateralized debt obligation) unambiguously increases when

• A) The correlation of default amongst the names in the CDO decreases.
• B) The correlation of default amongst the names in the CDO increases.
• C) The intensity of default of names in the portfolio decreases.
• D) The number of names in the CDO decreases.

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Definitions:

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, indicating the annualized rate of return that makes the net present value of all cash flows from the investment equal to zero.

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Cost Savings

A reduction in costs achieved through effective resource management, often resulting in increased profit margins.

Cash Payback

The period of time required for the cash flows from a capital investment to repay the initial investment cost.