1.Why did mortgage lenders frequently not check on information provided by potential borrowers on mortgage application forms during the 2000 to 2007 period?

2.How were the risks in ABS CDOs misjudged by the market?

3. What is meant by the term agency costs? How did agency costs play a role in the credit crisis?

4. How is an ABS CDO created? What was the motivation to create ABS CDOs?

5. Explain the impact of an increase in default correlation on the risks of the senior tranche of an ABS. What is its impact on the risks of the equity tranche?

6. Explain why the AAA-rated tranche of an ABS CDO is more risky than the AAA-rated tranche of an ABS.

7. Explain why the end-of-year bonus is sometimes referred to as short-term compensation.

8. Add rows in Table 8.1 corresponding to losses on the underlying assets of (a) 2%, (b) 6%, (c) 12%, and (d) 18%