Suppose that ABSs are created from portfolios of subprime mortgages with the following allocation of the principal to tranches: senior 75%, mezzanine 20% and equity 5%. An ABS CDO is then created from the mezzanine tranche with the same allocation of principal. Losses on the mortgage portfolio prove to be 16%. What as a per cent of tranche principal) are the losses on:
i) The equity tranche of the ABS? _ _ _ _ _ _
ii) The mezzanine tranche of the ABS? _ _ _ _ _ _
iii) The senior tranche of the ABS? _ _ _ _ _ _
iv) The equity tranche of the ABS CDO? _ _ _ _ _ _
v) The mezzanine tranche of the ABS CDO? _ _ _ _ _ _
vi) The senior tranche of the ABS CDO? _ _ _ _ _ _

Question

Quizplus · Accepted Answer

The Answer is i): 100%
ii): 55%
iii): 0%
iv): 100%
v): 100%
vi): 40%

Suppose That ABSs Are Created from Portfolios of Subprime Mortgages