1. If the probability of default for bond A2 increases to from 0.10 to 0.15 (holding bond Al's default probability at 0.10 and the dependency multiplier = 1): a. What happens to the values of each of the original two bonds? b. What happens to the values of senior and junior traunched bonds? c. Who (the senior or junior traunch) loses the most proportionately? d. Which traunch appears to be most susceptible to increases in the probability of default? e. Which traunch appears to be gain the most from a decrease in the probability of default? 2. Increase the dependency "multiplier" from 1 to 8 (increasing the probability of bonds A1 and A2 jointly defaulting) of loan defaults, holding the probabilities of A1 and A2 default fixed at 0.10 and 0.10. a. Which traunch loses the most proportionately as default dependency increases? b. Which traunch appears to be most susceptible to increases in the probability of joint default events? 3. Assume that the probability of default is increased to 0.15 for both bonds A1 and A2. a. Find the probability of joint defaults where both the senior and junior traunch have approximately the same proportional loss in value. Can we conclude that owning the junior traunch is more risky than owning the senior traunch? 1. If the probability of default for bond A2 increases to from 0.10 to 0.15 (holding bond Al's default probability at 0.10 and the dependency multiplier = 1): a. What happens to the values of each of the original two bonds? b. What happens to the values of senior and junior traunched bonds? c. Who (the senior or junior traunch) loses the most proportionately? d. Which traunch appears to be most susceptible to increases in the probability of default? e. Which traunch appears to be gain the most from a decrease in the probability of default? 2. Increase the dependency "multiplier" from 1 to 8 (increasing the probability of bonds A1 and A2 jointly defaulting) of loan defaults, holding the probabilities of A1 and A2 default fixed at 0.10 and 0.10. a. Which traunch loses the most proportionately as default dependency increases? b. Which traunch appears to be most susceptible to increases in the probability of joint default events? 3. Assume that the probability of default is increased to 0.15 for both bonds A1 and A2. a. Find the probability of joint defaults where both the senior and junior traunch have approximately the same proportional loss in value. Can we conclude that owning the junior traunch is more risky than owning the senior traunch