________ were designed to concentrate the credit risk of a bundle of loans on one class of investor,leaving the other investors in the pool relatively protected from that risk.
A)Stocks
B)Bonds
C)Derivatives
D)Collateralized debt obligations
E)all of the above.

Question

Quizplus · Accepted Answer

Collateralized debt obligations (CDOs) were specifically designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk. This is achieved by the creation of different tranches, each with a different level of risk and return. The senior tranches have a higher credit quality, and therefore lower risk, while the junior tranches have a higher risk and higher rewards. This mechanism allows investors to choose the level of risk they are willing to take and invest accordingly. Stocks, bonds, and derivatives are not specifically designed for this purpose.

________ Were Designed to Concentrate the Credit Risk of a Bundle