1. Securitization provides a way to diversify idiosyncratic risk. You are given an example in the notes of a $ 100 loan with a default rate of 5 %. For 100 households, 95 pay $115 and 5 pay nothing. The mortgage-backed security created by pooling the loans guaranteed a payment of $109.25 to each of the 100 lenders. Now suppose that there is an unanticipated increase in the rate of default, from 5% to 10%. Determine the expected value of a loan and the standard deviation with the new default rate. The mortgage- backed security had guaranteed a payment of $109.25. Is that payment still possible with the higher default rate? Explain. 1. Securitization provides a way to diversify idiosyncratic risk. You are given an example in the notes of a $ 100 loan with a default rate of 5 %. For 100 households, 95 pay $115 and 5 pay nothing. The mortgage-backed security created by pooling the loans guaranteed a payment of $109.25 to each of the 100 lenders. Now suppose that there is an unanticipated increase in the rate of default, from 5% to 10%. Determine the expected value of a loan and the standard deviation with the new default rate. The mortgage- backed security had guaranteed a payment of $109.25. Is that payment still possible with the higher default rate? Explain