A bank has a mortgage-backed security with a total principal of $10 million and monthly payments of $20,000. They wish to bundle it and are considering two possible divisions:

-2 tranches, each paying 10,000 per month and 2 tranches, the senior paying 15,000 per month and the junior paying 5,000

This question will ask about these 4 tranches, which you can abbreviate as 1-senior, 1-junior, 2- senior, and 2-junior.

1. If you had to rank the tranches in order of probability of default what would be the rank for the 4 tranches.