A collateralized default obligation (CDO) is a pool of securities (collateral) whose cash flows are tranched and sold to investors who take different levels of credit loss in the portfolio. Which of the following is the least likely to be seen in a the collateral of a CDO.

Question

Quizplus · Accepted Answer

Equities (stocks) are typically not included in the collateral of a CDO as their cash flows are not predictable enough for tranched securities. CDOs are usually constructed using portfolios of bonds, loans, CDS, or other structured finance products. C) A portfolio of CDS and D) A portfolio of CDOs are commonly seen in CDO collateral.

A Collateralized Default Obligation (CDO) Is a Pool of Securities