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%